“Dirty bomb” was the phrase of the day at the All Industry Day held Nov. 25 in Dallas—perhaps not so surprising, given the fact the conference was titled, “Confronting Terrorism, Not If But When.”
The “I” Day, jointly sponsored by the Independent Insurance Agents of Dallas, the Dallas Chapter of Chartered Property and Casualty Underwriters and the University of North Texas, was packed with continuing education seminars that focused on the problem of terrorism. What was surprising, and not a little disconcerting, was how often the phrase was heard during the various conference seminars. The apparent consensus from those who study these things is that the next big terrorist attack to occur on U.S. soil could very well be a dirty bomb.
Ernst Csiszar, the charismatic Insurance Commissioner of South Carolina and a staunch advocate of the free market system, began the day with a presentation entitled, “Socialism Revisited—The Insurance Indus-try in America.” Csiszar, who was born in Romania under Communist rule and emigrated to Canada in 1966, likened the damage from a dirty bomb to that of the devastation wrought by the explosion in the nuclear reactor at Chernobyl, in the Ukraine near the border of Belarus in 1986. In that disaster, he said, a vast amount of land was left uninhabitable, the population suffered from high rates of cancers, and radiation-induced defects soared among children born after the event, among other things. Csiszar acknowledged that there is “no way to plan for that,” but related that at a meeting of terrorism experts he attended recently the dirty bomb scenario was considered to be not an unlikely one.
In addition to terrorism, Csiszar touched on such issues as state versus federal regulation of insurance and the merits of an appointed state insurance commissioner, like himself, compared with an elected one.
Noting that he is an “unabashed supporter of state regulation,” Csiszar said the approval processes in the 50 different states present problems for insurers, along with regulators’ propensity for “over-regulating the trivial and under-regulating the essential.”
With regard to federal regulation, he added, “My fear is
that I know what the (federal) regulatory process is going to look like.” To Csiszar, the first problem is the size of the federal bureaucracy; the second is the amount of paper that would be generated at the federal level and the third problem is attitude. “Walk into a federal office and try to find a cheerful face to help you. … They are trained to tell you ‘no,'” he added.
“The real discussion … is about what is good regulation and what is bad regulation,” he said. “Where does government stop and private industry begin?” He asserted that such a choice should not be left up to legislators, many of whom are trial lawyers.
In a morning session, “How are Businesses Assessing Terrorism Risk,” moderated by Dennis McCuistion, executive producer of the PBS television program, McCuistion, a group of business executives responded to questions from the attendees, as well as McCuistion himself. The panelists included David Chavenson, VP and treasurer, Flowserve Corporation Inc.; Brian Coates, manager, PriceWaterhouseCoopers; Christopher Schupp, president, Robert Lynn Company; Tom O’Donovan, senior property syndicator, AON Risk Services; and Gonzalo Ornelas, treasurer, H.B. Zachary Construction.
Coates noted that in most U.S. industries terrorism had not been addressed before Sept. 11, 2001, with the exception of the oil and gas industry. “Because these companies tended to work overseas they were more exposed to the risk of terrorism and had therefore taken some precautions,” Coates said. “For most of those, however, those precautions were taken overseas, so they had not done much to secure their locations here in the United States.”
Stating he would not disagree with Coates’ assessment, AON Risk’s O’Donavan said, “I think the one difference with the 9/11 incident, as opposed to the Oklahoma City bombing and the previous World Trade Center bombing, is that the insurance industry reaction to 9/11 of restricting coverage did not happen in prior incidents. And I think that really raised the focus for a lot of businesses to terrorism and the need for really planning a response in the event of terrorism.”
As for actually purchasing terrorism risk insurance, O’Donovan said in his experience about a quarter of those offered the coverage are buying it. He noted that it is a price sensitive issue and his clients are evaluating the insurance in terms of risk versus value. Problems arise for businesses from the federal Terrorism Risk Insurance Act (TRIA) itself, in the gray area of what is or is not terrorism.
The joint issues of price and what a company gets for its money are obstacles for businesses, the group concluded. “There’s an army of attorneys at all these large insurers that are trying to figure out ways to exclude your coverage,” said Flowserve’s Chavenson. “… You think you’re buying something and when it comes to reading the fine print you might not be.”
Chavenson, whose company does business in Iraq as well as other Middle Eastern countries, said cost increases in all lines of commercial insurance have really hit businesses hard. “For most of us who work in small or medium sized businesses … the real headline is the tremendous increase in insurance premiums over the past couple of years,” he said. “It’s getting kind of tiresome for me to go into my boss and say, ‘our premiums are going to double, our premiums will triple, or quadruple.’ Even after we raised deductibles and all the sorts of things we do. And so to go in and say, ‘do you want to buy terrorism risk cover?” … It just doesn’t seem to go very far.”
By and large companies look at terrorism “risk as just an extension to business continuity and disaster recovery,” Coates said. “Businesses tend to focus on recoverability of people, processes and technology. So generally the approach taken is to think about recovering from a worst-case scenario, which means your building is unavailable. The assets that were within that location are unavailable, so what do you do from that point? The thought being that in any incident of less magnitude you would be able to shift gears and recover from that. So most companies that I have dealt with really only deal with the terrorism issue from a risk assessment point of view—really understanding what the risks are (and) what security measures can be put into place to mitigate against those risks. But when it comes to doing actual planning they really fall short in that area.”
In an afternoon seminar, “Terrorism and Personal Lines Insurance,” panelists discussed “What if…?” scenarios and how the industry would respond should a terrorism event that devastated residential areas occur.
Moderators David Van Delinder, executive director of the Independent Insurance Agents of Texas, and Jerry Johns, president of the Southwest Insurance Information Service, presided over a panel that included Lee Ann Alexander, AVP, Liberty Mutual; Robert Hatcher, III, EVP, Willis RE; James Killian, VP Government Affairs, Farmers Insurance, David Repinski, SVP, Cunningham Lindsey U.S.; and Gerald Ladner, regional VP, Zurich North America.
The discussion centered on homeowners coverage. Panelists agreed that uncertainties arise not only from the fact that the TRIA does not address personal lines, but also from the fact that the homeowners policies are not designed to cover terrorism. The definition of terrorism, or lack thereof, is also a mitigating factor. While an explosion may or not be covered, fire certainly would, at least in Texas where fire coverage is a required element of the policy.
More questions arose than answers. Ladner, who was instrumental in putting the terrorism seminars together, led the charge with questions like: “If a dirty bomb went off in Plano, Texas, would my homeowners carrier respond?” He noted that the “insurance industry does a great job in talking to ourselves.” But, he asked, “who in the industry will take responsibility to inform consumers,” whether or not their property is covered for damage arising out of a terrorist situation? However, definitional issues stood in the way of definitive answers to most of his questions.
While Willis RE’s Hatcher noted that the reinsurance industry doesn’t regard the personal lines risk to be all that great, much of their concern is focused on what role the government will play, going forward, in reinsuring terrorism exposures.
Other seminar topics included: implementtion of the TRIA; security and crisis consulting; and lawsuit terrorism and tort reform.
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