New Swiss Re Publication Examines Terrorist Risks

Swiss Re announced that it has published a timely new study, “Terrorism risks in property insurance and their insurability after 11 September 2001,” which it described as a “brochure aimed at identifying the perimeters of terrorism, assessing risk related to terrorism, how risk has changed and how the risk community is dealing with those changes.”

The paper, the latest publication in Swiss Re’s Risk Perception Series, “also compares the insurability of terrorism before and after 11 September, and demonstrates a global perspective of the initiatives and schemes taken by various countries,” said the announcement.

“The first part of the Swiss Re study comprises a systematic application of risk management principles. It examines the spectre of terrorism and how terrorism risks can be identified, assessed and handled by insurers and reinsurers. To identify the relative probability of different scenarios, the authors recommend first identifying which persons, groups or institutions are most at risk. They group together many different effects into three main factors: terrorists’ intentions, terrorists’ potential and the vulnerability of the society under attack,” said the announcement. The authors concluded that, although there are no simple answers or ready-made solutions, “terrorism follows its own, albeit twisted, logic.”

Jacques Dubois, Chairman of Swiss Re America Holding Corp. observed that “Predicting both the frequency and severity of terrorist acts is extremely challenging. Nonetheless, while there are still details to be resolved, the US Terrorism Risk Insurance Act is a welcome public/private sector initiative dealing with this threat.”

The second part of the study “addresses risk transfer, covering specific aspects of insurability and reinsurability in the context of terrorism risks in property and business interruption insurance, said the announcement. “The authors conclude that losses resulting from terrorism in these lines of business are insurable given a set of mandatory criteria.”

Under the heading “The new reinsurability” they set forth three main criteria to be applied as follows:
1. The additional premium for inclusion must be commensurate with the anticipated claims burden;
2. The liability for losses caused by “terrorism” must be limited in normal property and business interruption policies; reinsurance cover for theses types of policies must also be limited;
3. The risk community should be extended where the number of risks threatened by the same peril is too small to obtain a reasonable premium rate.

The publication is rounded off with two appendices specifying terrorism insurance schemes in European countries and the Terrorism Insurance Act 2002 (TRIA) in the US.

Copies of the study may be downloaded from the Swiss Re Web Site at:www.swissre.com, or ordered in a print version by e-mail at: publications@swissre.com.