Terrorist attack cost estimates rise

NEW YORK--The estimated insurance loss from a terrorist attack in the United States in 2008 is projected to increase by 14% compared to 2007, driven chiefly by higher workers compensation exposures, according to the latest terrorism risk model by Risk Management Solutions Inc.

Improved anti-terrorism efforts are expected to thwart the majority of attempted terrorist attacks in the United States, but those that succeed will likely be severe, said Andrew Coburn, the London-based director of terrorism research for RMS. And "at some point, it is likely that an attack will succeed."

The number of people killed per terrorist attack worldwide has more than doubled in the past three years, as terrorists target crowded areas and place bombs at precise locations to maximize destruction of buildings and bridges and inflict as many casualties as possible during structural collapses, he said.

He also noted that the database of potential targets in the United States has been updated to include chlorine and ammonia storage facilities, due to interest by terrorist groups in utilizing chemicals to enhance conventional bomb attacks. There have been seven chlorine bomb attacks in Iraq so far in 2007, and "there is no reason to believe it won't occur outside" that country, he said.

The recent terrorist plots in London and Glasgow, Scotland, apparently were attempts to create devastating fuel-air explosions utilizing readily available materials such as propane gas, Mr. Coburn said. A fuel-air explosion potentially can have a damage footprint 20% larger than a conventional truck bomb and could cause a 30% higher insured loss, he said. While such attacks are difficult to carry out, insurers may have to re-examine their risk accumulations if terrorists ultimately succeed in such attempts, he said.

Meanwhile, the debate over the Terrorism Risk Insurance Revision and Extension Act has significant implications for the ability of the U.S. economy to recover from a terrorist attack, said Lloyd Dixon, a senior economist for Santa Monica, Calif.-based Rand Corp. "The lack of terrorism coverage remains a major gap in our national efforts to combat terrorism," he said, referring to the absence of nuclear, biological, chemical and radiological coverage in TRIA.

The nonrenewal of TRIA would lead to a double-digit decline in take-up rates for property insurance related to conventional terrorist attacks, according to a Rand Corp. analysis. In addition, take-up rates for conventional coverage could be adversely affected if TRIA is expanded to require insurers to offer NBCR coverage without changing deductible or copayment levels, Rand stated in its analysis.