Munich Re Calls for Fundamental Reorientation on Terrorist Risks

October 19, 2001

Munich Re has just released a preliminary study of the attack on the World Trade Center which contains not only a detailed analysis of what led to the collapse of the twin towers, but also states that “the private insurance industry must unconditionally rethink its policy on covering political risks and follow through with the requisite decisions.”

The world’s largest reinsurer, which is expecting losses in the $2 billion range from the events of September 11, conceded that the extent of the losses were “unconceivable” before that date. The report, entitled “11th September 2001 – The attack on the World Trade Center in New York from an insurance point of view,” contains Munich Re’s “initial, findings and recommendations,” focusing on the structural engineering aspects of high-rise buildings, and “issues related to property and business interruption insurance.”

The report stresses that “a detailed analysis of the attacks on the WTC and the consequences for the insurance industry is not possible at this time due to the complexity of the losses.” It noted, however that “Experts believe that the BI losses generated by the event… will ultimately far exceed the sum of all the property losses.” One reason cited by the report is that “it is impossible at present to forecast the duration of the interruption.” It points out that in addition to the WTC collapse at least 50 other nearby buildings suffered severe damage, some having already collapsed, and others rendered too unsafe to reoccupy.

Among the many conclusions in Munich Re’s report is the following: “The question is whether it is the task of individual insurers or indeed the private insurance industry as a whole to provide covers for circumstances whose lack of transparency rules out any possibility of calculating the risk and whose causes are political or state-related.”

It lists 11″concrete requirements,” which it feels must be put in place to limit the risks from terrorist attacks, including clear definitions of excluded political risks, limitations on BI coverage, limits on indemnity and deductibles, state compensation and the amount(s) of additional premiums.

A copy of this extremely comprehensive and well prepared study may be downloaded from Munich Re’s website at: www.munichre.com.

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