Terrorism insurance

14 July 2016 —
Heraclitus quoted in nearly in 500 BC, "There is nothing permanent except change". Or in other words, "Everything changes and nothing stands still". In other words, Plato said "You could not step twice into the same river". From time to time, history have proved that the statement of these wise men true.

The world has changed, needs have changed, economy has changed, infrastructure, communication, transportation, life style have changed. With all of the change, issues and problems have changed. With changing economy, insurance have changed. From time to time insurance industry has changed since the time insurance begun. It started with marine industry, turned in to various other sectors. It became to property insurance for many decades and last few years the major sector of insurance was motor, comprising almost 50% of income to many insurance companies. However, in some part of the world, there is a substantial increase in Medical insurance.

What use to be part of property insurance as an important cover, theft have seen decrease in claims. In fact, the end result remains same where insured suffers loss, however the means and ways have changed. It has taken a form from "forcible entry in to building" to "cybercrime", an illegal entry in to your system, a digital way. Data breach, identity theft, theft (music, videos, software, games), hacking, Cyber Stalking, spreading virus, child pornography etc. are the new challenges. However, these are the issues that are still relatively wide spread, however the issue that has challenged the world today is terrorism, that we would try and examine.

We have seen disruption of property, business in form or Strike, Riots and Civil Commotion since many decades. This was extended to cover "Sabotage and Terrorism" and we saw increase demand of this cover for many years. Situation in Afghanistan, Syria, Libya, Egypt etc. places have given rise to increase demand of "political violence cover.

We can look at various definitions of Terrorism and Political Violence to understand the problem at basic level.

The famous Wikipedia defines Terrorism as

"Terrorism, in its broadest sense, is defined as the use of violence, or threatened use of violence, in order to achieve a political, religious, or ideological aim. In modern times, terrorism is considered a major threat to society and therefore illegal under anti-terrorism laws in most jurisdictions. It is also considered a war crime under the laws of war when used to target non-combatants, such as civilians, neutral military personnel, or enemy prisoners of war".

Definitions of Terrorism in the U.S. Code

18 U.S.C. - 2331 defines "international terrorism" and "domestic terrorism" for purposes of Chapter 113B of the Code, entitled "Terrorism":

"International terrorism" means activities with the following three characteristics:
  • Involve violent acts or acts dangerous to human life that violate federal or state law;
  • Appear to be intended (i) to intimidate or coerce a civilian population; (ii) to influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping; and
  • Occur primarily outside the territorial jurisdiction of the U.S., or transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to intimidate or coerce, or the locale in which their perpetrators operate or seek asylum.
"Domestic terrorism" means activities with the following three characteristics:
  • Involve acts dangerous to human life that violate federal or state law;
  • Appear intended (i) to intimidate or coerce a civilian population; (ii) to influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by mass destruction, assassination. or kidnapping; and
  • Occur primarily within the territorial jurisdiction of the U.S.
FISA defines "international terrorism" in a nearly identical way, replacing "primarily" outside the U.S. with "totally" outside the U.S. 50 U.S.C. - 1801(c). (Source)

While coming to the effect of Terrorism to the world and insurance industry, we would see following statistics. According to The global terrorism index report by Institute for Economics and Peace, they have studied changing trends of terrorism in 162 countries since 2000. Findings are
  • Ninety-three countries experienced a terrorist incident in 2014, up from 88 in 2013.
  • IEP conservatively estimates the economic cost of terrorism reached its highest ever level in 2014 at US$52.9 billion, 61% increased compared to previous year. 
  • Death due to terrorism in 2000 were 3,329 that has increased to 32,685 in 2014. 2014 had 80% more death due to terrorism compared to 2013, this was the largest yearly increase in since 15 years. 
  • In 2014 with the number of countries experiencing more than 500 deaths increasing from five to 11, a 120 per cent increase from the previous year. 
  • The total number of countries which experienced at least one death increased by eight, raising the total to 67 countries in 2014. 
  • Looking at spread of terrorism across the world, most of the terrorist activities are in Iraq, Nigeria, Afghanistan, Pakistan and Syria. The new countries over death of 500 are Somalia, Ukraine, Yemen, Central African Republic, South Sudan and Cameroon. New countries where death case reported have included Austria, Australia, Belgium, Canada and France which experienced high profile terrorist attacks last year. 
  • In western countries, eighty per cent of deaths by lone wolf terrorists were driven by right wing extremism, nationalism, anti- government sentiment and political extremism and other forms of supremacy.
  • The research found that 92 per cent of all terrorist attacks between 1989 and 2014 occurred in countries where political violence by the government was widespread.
It proves we have reached the Red Alarm now. This would also indicate what would be rising scenario in 2015, by 2017 and 2020.

Few references that indicates global terrorism is increasing are

  • Luke Hunt on May 08, 2015 in the magazine "The Diplomat" writes The Asia-Pacific's Rising Terrorist Threat - The foiled terrorist strikes this year are an ugly omen of more to come.
  • Amy Chew on Monday, 11 August, 2014 in Magazine South China Morning Post: Islamic State 'now planning terror attacks on Asian soil' - Counter-terrorism officials in Malaysia and Indonesia say citizens who have joined the terror group are planning attacks on home soil.
Middle East
  • This does not require statistics to prove they face risk of terrorism; it is well known.

To strengthen the argument, we look at following some more statistics.
  • A growing issue worldwide, terrorism, has caused around 130,000 fatalities worldwide between 2006 and 2013.
  • There have been approximately 90,000 total terrorist attacks in this time of 2006 to 2014. 
  • Not only does terrorism have a massive social impact on the world, but it also has a tremendous global economic impact. 
  • The costs of terrorist attacks by insured property losses have cost the insurance industry billions over the past decade. 
  • The bombing of the London financial district in 1993 cost the insurance industry around 1 billion U.S. dollars.
(Source: www.statista.com)

Some Statistics of Insurance and Terrorism business.

Top 20 most costly terrorist acts by insured property losses, as per data taken from "Insurance Institute of India website.

Insurance has been providing solution to society with changing needs. The industry is working towards providing cover to this new challenge. A rough estimate is Lloyds of London has nearly USD 3 billion capacity for terrorism business. More and more number of syndicates and reinsurance companies are entering the market with terrorism capacity. Researches are being carries out and expertise are developing. To understand the initiative by insurance industry can be seen in following paragraph.

There are various forms, however the standard and most used form of political violence cover in insurance is "AFB 1 to 7 wording". It gives a cover to insured for 1) Act of Terrorism, 2) Sabotage, 3) Riots, Strikes and/or Civil Commotion, 4) Malicious Damage, 5) Insurrection, Revolution or Rebellion, 6) Mutiny and/or Coup d'Etat, 7) War and/or Civil War. So in a lay man's language one can say that nothing is excluded unless specifically described. The list also demarks how it is different from other covers of SRCC and S&T. The cover can been given for property damage, business interruption and liability arising out of act of political violence.

It would be important to see how the wording has been framed to define terrorism (in AFB 1 to 7 Beazley wording), that goes as:

"Act of Terrorism" shall mean an unlawful act, including the use of force or violence, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization (s), committed for political, religious or ideological purposes including the intention to influence any government and/or to put the public in fear for such purposes".
  • "Civil War" shall mean an internecine war, or a war carried on between or among opposing citizens of the same country or nation.
  • "Coup d'Etat" shall mean the sudden, violent and illegal overthrow of a sovereign government or any attempt at such overthrow.
  • "Insurrection, Revolution and Rebellion" shall mean a deliberate, organized and open resistance, by force and arms, to the laws or operations of a sovereign government, committed by its citizens or subjects and/or a rising against a sovereign government or other authority.
  • "Malicious Damage" shall mean all physical loss or physical damage resulting directly from a malicious act by anyone during a disturbance of the public peace where such malicious act is perpetrated for political reasons by known or unknown person(s).
  • "Mutiny" shall mean a wilful resistance by members of legally armed or peace-keeping forces to a superior officer.
  • "Riots" shall mean any act committed in the course of a disturbance of the public peace (where such disturbance is motivated by political reasons) by any person taking part together with others in such disturbance or any act of any lawfully constituted authority for the purpose of suppressing or minimizing the consequence of such act.
  • "Strikes" shall mean any wilful act of any striker or locked-out worker in the furtherance of a strike or in resistance to a lock-out or any act of any lawfully constituted authority for the purpose of suppressing or minimizing the consequence of such act.
  • "Sabotage" shall mean willful physical damage or destruction perpetrated for political reasons by known or unknown person(s).
  • "War" shall mean a contest by force between two or more sovereign nations, carried on for any purpose, armed conflict of sovereign powers and/or declared or undeclared and open hostilities between sovereign nations.
With these we conclude with a determination to provide solution to emmerging challenges that society is facing, would see in 2016, 2018, 2020, and so on.

by Hitesh KHRISTY

Hitesh KHRISTY is a Development, Project Management and Reinsurance Professional, having worked in multiple countries. He has been writing for NGOs, IT Companies, insurance sector and on social issues, political empowerment, United Nation and it's concerns, war and peace, for more than one decades. Has been involved in speaking at Social work and Social science schools & various universities on Welfare Insurance, Micro Insurance, War & Terrorism, Social issues. Few of his upcoming books are on 1) Modern Social Problems, 2) Liability Insurance,  3) Terrorism etc.

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