Terrorism 10 Years After

Ten years after the events of Sept. 11, 2011, terrorism remains a significant risk both globally and within the United States. The need to be vigilant against those who would harm innocent people in the name of whatever cause they profess to follow is ever present, but the nature of the risk is not necessarily the same as it was a decade ago.

Osama bin Laden is dead. The terrorism organization he led in 2011, al-Qaeda, was centrally organized and well-funded, and able to carry out large scale attacks of high visibility. Bin Laden’s demise coupled with the military operations carried out in Iraq and Afghanistan have diminished the centralized nature of al-Qaeda’s leadership, according to a recent report by Guy Carpenter & Co., a unit of Marsh and McLennan Cos. The ideology behind the organization, along with its stated intentions to avenge bin Laden’s death, remains strong, meaning that the United States and its allies continue to face a credible threat from al-Qaeda.

Despite the continued, ongoing and ever evolving threat of terrorist risks, Guy Carpenter reports that the insurance capacity for terrorism events is abundant in the United States – between $6 billion and $8 billion – partially due to the existence of the terrorism backstop program created by the Terrorism Risk Insurance Act of 2002.

In its report, Guy Carpenter observes that future terrorism risks may include globally organized threats but domestic attacks, as well. As the report points out, the July 2011 attacks in Norway that killed 77 people, of whom the majority were youths, were planned and executed by a right wing extremist Norwegian national. It was the worst such incident of its kind in Norway since World War 11 and “Western Europe’s deadliest terrorist-related attack since 2004,” the report noted.

Cyber terrorism, too, is seen to be an increasing threat. “Due to the global economy’s increasing reliance on computer systems, the Central Intelligence Agency (CIA) has described cyber terrorism as the battleground for the future,” the report states. “Cyber risks are a mounting concern for governments and organizations around the world, prompting warnings that any successful attack on critical infrastructure, such as military installations, financial markets, aviation control centers, water systems and power supplies, could have devastating consequences.”

As a result of the perceived growing threat of cyber terrorism, “the Pentagon recently announced plans to categorize cyber attacks as acts of war, allowing the president to consider all appropriate options” if key computer systems in the United States were attacked.

Prices for terrorism reinsurance peaked between 2002 and 2004, according to the report, and gradually drifted downward and flattening in recent years. Reinsurers’ terrorism risk pricing is related not only to global terrorism events and losses from civil unrest, but is also indirectly linked to the property catastrophe market, according to Guy Carpenter. Both are high severity but generally low frequency risks – although 2011 seemed to be shaping to be the costliest year in history for natural disasters around the globe, even before the onslaught of hurricane season.

It will be interesting to see if Hurricane Irene, which stormed up the East Coast of the United States in late August will be a catalyst for rate increases in either the property or terrorism insurance markets.

“While there is no direct link between terrorism underwriting and natural peril catastrophe losses or model changes, the reverberating impact of these factors on the market has necessitated an evaluation of all catastrophic exposure allocations and strategies, including for the peril of terrorism,” the report states. “Yet, assuming there is no major terrorism loss or other market-changing events, we do not expect reinsurers to significantly change their terror underwriting appetite in the near term.”

The global capacity for terrorism insurance has not changed much over the past five years and “barring major events or very strong currency movements,” Guy Carpenter does not expect 2012 to bring significant modifications in capacity or pricing either.

Topics Catastrophe USA Natural Disasters