21st century terrorism

The evolving terrorist threat is making businesses rethink their risk and insurance strategy.

The world is on high alert. In 2014, terrorist related incidents rose 80%1, while since the beginning of 2015, ISIL – or Islamic State – alone has been directly responsible or acted as the inspiration for over 60 major acts of terror. Ranging from coordinated assaults on highly populated areas to “lone wolf” attacks, terrorist organizations are waging war on the world.

The rapid rise of such organizations over the last decade is a symptom of today’s highly globalized world. While operating primarily from strongholds in Iraq and Syria, ISIL for example is able to conduct ground-based warfare, while also directing or motivating attacks globally via social media.

According to the 2015 Global Terrorism Index, deaths from terrorist incidents almost doubled in 2014 from 18,111 in 2013 to 32,685. The worldwide cost of terrorism was $52.9bn, an increase of approximately $20bn on 2013 and a tenfold increase on 2000 ($4.93bn). Further, the number of countries impacted by terrorist attacks increased by over 4% to 93 during the period. Figures are not yet available for 2015.

At a business level, the threat posed is causing growing corporate-level concern. According to the latest “Horizon Scan” report from the Business Continuity Institute, the perceived threat to businesses has increased considerably in the last year. Respondents elevated terrorism from 10th to 4th in the list of global threats to an organization – behind cyber attacks, data breaches and unplanned IT outages.

Disrupting businesses While the likelihood of a direct impact from a terrorist attack is extremely small, the repercussions of such events on business activities are becoming more pronounced. Business disruptions from terrorist-related incidents are becoming an increasingly common occurrence. Recent events have resulted in city-wide shutdowns, transport disruption, heightened security procedures and event cancellation. Businesses in impacted areas have struggled to return to normality due to ongoing fears over similar attacks. In many holiday destinations targeted by terrorists, the industry has ground to a halt. Even the threat of an event is sufficient to cause wide-scale closures, as seen in December 2015 when an email threat resulted in the shutdown of over 900 schools in Los Angeles.

While numerous government-sponsored pools are in place to help businesses cope with the financial fall-out from a terrorist attack, their effectiveness is being questioned due to changing terrorist tactics. Political risk analysts note a pronounced shift in focus from major buildings and assets to so-called “soft targets”, with the aim to cause disruption and fear the primary motive.

Appropriate risk transfer

The Marsh Terrorism Risk Report 2015 showed a 50% increase in organizations turning to standalone terrorism cover in 2014 – a fact attributed primarily to previous concerns surrounding the renewal of the U.S. terrorism facility TRIPRA, but also reflecting improved rates, more expansive coverage, higher limits, and longer contracts in the terrorism insurance market.

The insurance market has been quick to respond to changing dynamics, expanding the coverage remit of terrorism policies to factor in business interruption losses and additional expenses incurred in managing such events.

In 2015, Hiscox launched a standalone threat product to protect businesses against the loss of revenue due to a threat or hoax, providing non-physical damage business interruption cover. More recently, XL Catlin has boosted its standalone terrorism product by doubling available limits to $200m and including specialized active assailant coverage.

Businesses should, however, consider their coverage needs very carefully. Recent events have created a grey area in terms of what constitutes a terrorist verses a politically-motivated attack. Companies may need to consider a combination of political violence and terrorism insurance to build the most appropriate protection. As the terrorist threat evolves, so too will the insurance industry’s response. At a time when businesses across the world are on high security alert, protection at all levels is a priority.

April 2016