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Changes in the way terrorist acts are perpetrated, shifting the focus from achieving maximum property damage to a large human toll, are changing the calculus used when considering terrorism exposures.
Terrorist events in recent months in London involving van and knife attacks and a bombing outside an Ariana Grande concert in Manchester, England, targeted crowds of people and resulted in multiple deaths and injuries. A similar shift in terrorist targeting was apparent in attacks in the United States and France in 2015 and 2016.
While the stand-alone terrorism insurance market has largely focused on property exposures since the Sept. 11, 2001, terrorist attacks in New York and Washington, liability exposures have emerged as another source of concern, terrorism insurance experts say.
The relatively low limits available under many general liability policies may be insufficient to address potential liability from a terrorist attack, they say.
“There’s been a huge shift toward the liability side,” said Michelle Sansone, president of North American property and engineering for XL Insurance America Inc. in New York, a unit of XL Group Ltd. “Now, it’s more about how many people are involved,” she said, as opposed to inflicting property damage.
“There definitely has been a shift away from targeting government infrastructure or civil or military authority targets toward attacks on the general public,” said Mark Leverick, U.S. property terrorism leader for Aon Risk Solutions in New York.
“There has been a general shift, and it does raise some interesting concepts around what it means for a client’s risk profile and protection.”
“We estimate there is probably $500 million to $700 million per risk stand-alone terrorism liability capacity in the market right now,” said Wendy Peters, executive vice president of Financial Solutions-terrorism and political violence for Willis Towers Watson P.L.C. in New York.
The shift in modes of attacks represents a new variable in the risk management equation.
“There will be a need to look at how you deal with your liability exposures,” said Mr. Leverick. “Your liability exposure in the U.S. may well be covered by your (general liability) program, but whether that’s the right thing or the move that should be made in terms of your protection, your balance sheet and the ongoing costs of your GL program, is really industry and client specific.”
Covering terrorism liability exposures under a stand-alone policy can provide separate, added protection to policyholders that have a large self-insured retention or deductible on their general liability program, he said.
“Or you treat it like a catastrophe risk and you want to protect your general liability program from a shock loss, like some people silo off excess flood or have a separate placement for California earthquake or Florida wind. Those are the things from a risk management point of view that one has to consider,” Mr. Leverick said.
Third-party terrorism liability coverage programs are purchased through the stand-alone terrorism insurance markets mainly in New York and London, said Tarique Nageer, terrorism placement and advisory practice leader for Marsh USA Inc., in New York.
“I’d say in the last year we’ve seen a heightened interest in these products,” he said.
The change in attack patterns create exposures for policyholders that had not previously been contemplated and gaps in coverage that brokers say they are working with insurers to address. One such area is in the transportation sector due to the use of vehicles in some recent attacks.
“There has also been a focus on trucking risks and coverage gaps in liability policies,” said Ms. Peters “The stand-alone terrorism market has developed products designed to respond to the exposure which results from a truck being appropriated and used in the commissioning of an attack, particularly if carrying chemical materials or nuclear waste.”
Another area getting more attention is the mass casualty scenario, as policyholders’ understanding of these risks may be evolving, said Ben Tucker, head of U.S. terrorism and political violence insurance for XL in New York. Research in support of a potential new product showed that while many large companies have “very large liability limits, both primary and excess,” the next layer down, single venue owners, for example, “have much lower limits,” he said.
“Think about the incidents in and around London Bridge, Westminster, the Manchester concert or at the Pulse Night Club in Orlando — the modes of attack which were utilized and potential liability,” said Mr. Nageer of Marsh. “Companies need to continuously review their insurance coverages to gauge if they are sufficiently protected for losses not only from a property damage perspective, but also liability.”
Policyholders could be underinsured, finding themselves without sufficient limits to cover this evolving exposure, experts say.
“I think there is a segment of business in the U.S. that does not have adequate protection or the right coverage” to face a mass casualty event, said Mr. Tucker of XL.
“It becomes a matter of limits,” said Jaime Vento, senior vice president and product line manager, global risk management, for XL Insurance America. “Our primary casualty GL policies typically have no more than $5 million in limit, and we’re finding that accounts that have mass casualty exposure are questioning if they really have the protection they need.”
“Now it is becoming more and more obvious with the claims that happen – people are starting to realize that they don’t have enough limit and are reviewing it,” said Ms. Sansone.
Insurers are also increasingly turning to specialized expertise, including for advice on their security protocols.
“There’s been a large increase in looking at partnering with consulting firms including public relations responses and security advice, as well as the insurers themselves looking at bringing expertise on board,” said Mr. Leverick. “There has been expansion in the available services clients can access and the partnering with other companies by insurers has allowed those services to become part of the offering.”
Pharmaceutical manufacturers have long been viewed as a major source of liability exposure, and their risk profiles are getting more complex as they battle a range of liability issues on multiple fronts.