Government and Terror Insurance

From time to time, we offer other folks an opportunity to “guest-blog” here at IB. We recently received an interesting email from a company called Guy Carpenter, “the world’s leading risk and reinsurance specialist and a part of the Marsh & McLennan Companies.” Since we’re all about risk, this seemed a natural.

The challenge was that the article, while interesting, was perhaps a bit too “inside baseball” for our readers (it certainly was for us). On the other hand, this seemed to us to be an important and interesting risk management tool, and we asked if GC would be kind enough to blog about it for us. Fortunately, Chris Klein, GC’s Global Head of Business Intelligence, was kind enough to do so, and we’re pleased to present his post on how governments can act as a sort of “reinsurer” for terrorism cover:

It’s still far from the norm, but governments around the world are becoming increasingly involved in providing terrorism reinsurance. In addition to catastrophe cover, some are addressing business interruption, motor, life and other lines. While many countries still haven’t stepped into the marketplace, larger, developed nations are now quite active.

Government involvement has become necessary, in many cases, as private insurers and reinsurers would otherwise step back from these risks – either by reducing their exposure or eliminating it completely.

The United States, one of the early entrants following the terror attacks of September 11, 2001, has addressed cover at both the federal and state level – the former with an extension of the Terrorism Risk Insurance Act of 2002 and the latter through the addition of terrorism exclusions to the “1943 New York Standard Fire Policy.”

In Europe, Austria, Belgium, France, Germany, the Netherlands and the United Kingdom have implemented terror insurance schemes as a way to ease the burden on private carriers and ensure that a robust market can be supported. But, Denmark, Italy, Norway, Portugal and Sweden have not been similarly engaged.

And, the market is continually changing.

Specific threats and impacts do not stand still, resulting in a dynamic environment that can be difficult for carriers to manage. Fortunately, the tools of the trade are progressing alongside the risks. Last year, AIR Worldwide Corporation updated its damage functions to include the impact of reflected pressure waves in the wake of a conventional bomb blast. Risk Management Solutions has updated the number of targets in its U.S. model to 98 – including chemical plants, government buildings and convention and entertainment centers.

While it may seem a bit dry, this is critical information. How many folks know whether or not their homeowners policy covers acts of terrorism (not the same as “acts of war”)? What about your life and health policies? Hopefully, we’ll never have such a claim, but it’s helpful to know that both the private and the public sectors are working on this.

Thank you, Chris!

[Hat Tip: Matt Conroy]