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Growing economic losses stemming from terrorism demand a response from the insurance sector, according to a report released Thursday by reinsurance broker Guy Carpenter & Co. LLC.
Terrorism cost an estimated €43 billion ($49.52 billion) in gross domestic product growth in the United Kingdom between 2004 and 2016, while across the European Union that cost was estimated at €180 billion, according to the Guy Carpenter report, A Maturing Market Meets an Evolving Peril, September, 2018.
The insurance sector will help provide answers to these problems.
The reinsurance and insurance sector has an important role to play — directly, by offering products to consumers that mitigate the risk of loss, or indirectly, by offering solutions that minimize risk to government balance sheets,” the report said. “It is clear our industry will play an important role in shaping the response to this threat.”
Patterns of attack have shifted from large-scale events epitomized by the World Trade Center Attacks of Sept. 11, 2001, to “smaller, less sophisticated, yet no less appalling acts of terrorism,” everywhere including Australia, Belgium, France, Germany, Indonesia, Spain, the United Kingdom and the United States, the report said.
The nature of such events “will continue to change as new technologies and opportunities reveal themselves to terrorist organizations,” the report said, citing cyber terrorism is an example of a “newly developing frontier within the peril.”
This ongoing evolution will pose a continuing challenge for the insurance sector.
“More than ever before, brokers and underwriters must use their expertise and solutions to keep insurers and citizens adequately protected. With the peril mutating rapidly, the entire insurance value chain is being challenged,” the report said.
Both increased capital and improved modelling will help enable these efforts.
“New sources of capital combined with capital supplied by traditional reinsurers can potentially create abundant supply,” the report said, while “improved understanding and modeling of the peril are crucial.”
Pricing decreases for private market terrorism insurance have begun to flatten after years of decline flowing the active 2017 catastrophe season, according to a report Friday from rating agency A.M. Best Co.