The Sept. 11, 2001, terrorist attacks forever changed how the insurance industry views terrorism risk, says Robert Hartwig, president of the Insurance Information Institute.
For the global insurance and reinsurance industry the impact from 9/11 was substantial, amounting to insured losses of some $32.5 billion in today’s dollars. The event remains the second largest insured loss in history, second only to Hurricane Katrina losses which totaled $45 billion.
9/11 changed how insurers view risk, Hartwig says.
“It was probably more transformational in how we think about risk from an insurance perspective and from a societal perspective than even the larger events such as Katrina or the Japanese earthquake,” he says.
Hartwig says that while the risk for a large scale terrorist attack in the United States has been reduced, the risk continues to remain high for attacks of a smaller magnitude.
“We are certainly at risk for an attack of a smaller magnitude by either a Jihadist inspired group or an individual rogue terrorist unattached to any particular group. We remain very vulnerable to that,” he says. At least a dozen terrorist attacks have been planned, and to some degree carried out against the U.S., he said. “Some of these attacks came very close to being successful. … It’s almost nothing short of amazing that a successful attack has not occurred on U.S. soil.”
The risk is clear and so is the need for terrorism coverage, Hartwig said.
While terrorism risk insurance was almost non-existent prior to 9/11, today the coverage is prevalent. Some two-thirds of businesses today have terrorism coverage, Hartwig said in an interview with Insurance Journal.
“Everybody has it,” he said. The coverage is automatic in workers’ compensation and the cost to purchase terrorism coverage is affordable, he says.
Terrorism coverage under the federal Terrorism Risk Insurance Program, passed in 2002 and extended two times since then, has been a success story, he says. “It’s a government program that hasn’t cost the government a dime.”
The current TRIA program expires in 2014 and some fiscal conservatives in Washington and the Obama Administration hope to scale back support for the federal program. But Hartwig says the unpredictability of terrorism risk requires federal help.
There are several reasons why TRIA should be maintained beyond its 2014 expiration date, including the unpredictability of claims payouts, he adds.
“We are talking about some modeled losses that have put potential terrorist attacks in the event of say a nuclear, biological or chemical type of attack in the hundreds of billions of dollars range,” he says. “That is beyond the claims paying ability of the global insurance or reinsurance sector.”
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