In this series, the Iconoclast has been exploring terrorism and its potential targets, as well as short-term and long-range methods of addressing the risk. In this final part of the series, he continues to seek ways to combat terrorist exposures.

With a schoolyard bully, a kid can either give up and lose his self esteem, or he can respond and get into a fight, maybe getting his own teeth knocked out. Chances are, in today's politically correct society, it is the bullied kid who will be hauled to the principal's office, scolded, lectured, and kicked out of school for a few days, while the bully runs off to hide, crying foul. As George C. Scott says in the opening lines to Patton, every red-blooded American loves a good fight.

The modern terrorist is a schoolyard bully. He gets a big stick and decides to clobber some unsuspecting victim he does not even know, for some psychologically screwball purpose he dreams up. In the case of al Qaeda, as we noted last month, it's called Wahhabism, where there is only black-and-white, concrete thinking. Those guys cannot think in dynamic ways; they are right and everybody else is wrong and ought to be dead. That is what lay at the root of every religious war that has ever been fought.

Thank goodness we have launched a War on Terrorism. It is time to beat up the bullies and get rid of them. Of course, since they always run away and hide, first we have to find them. And since they will recruit more bullies to their brand of fundamentalist fanaticism, the fight will grow exponentially. We will never know when they have crept out from their caves or other hiding places and planted bombs until those bombs explode.

This writer has been writing about terrorism for decades. In 1985, his "Terrorism as an Insurable Peril" was the lead article in the December issue of the CPCU Journal. (I noted on Google that someone had quoted the article in 2002!) He has covered it in his textbooks, written about it in this column, and talked about it in lectures. Terrorism is not new, nor is it unique. Modern terrorism is deadly; we must respond appropriately. Most terrorism, including economic terrorism, is designed to bring about change; occasionally the successful terrorism brings about positive change.

Economic terrorism can be as deadly as violent terrorism, but equally effective. To British business interests in the 1760s, a boycott of their expensive English products by the Colonies was devastating. Threats of "You tax it and we won't buy it!" got their attention. In Boston, colonists dressed up like Indians and threw British tea into the bay. By 1774, the British Navy was sitting in Boston Harbor, blockading the city. It was damned frustrating, and the colonists revolted.

In the 1990s, we put an economic blockade on Iraq, and then we wondered why they hated us. We knew Saddam had weapons of mass destruction, because we probably had supplied them to him when he was our terrorist back in the 1980s against Iran, just as Osama was our guy against the Russians in Afghanistan. How quickly we forget.

Bringing About Change

So what do we do? The changes that al Qaeda wants will not happen, at least in the West anytime soon. The radical fundamentalists in al Qaeda are angry with everyone, including the millions of non-radical, peace-loving Muslims. The world is not going to adopt a fundamentalist brand of Islam, at least not in the next decade. American women will not be taking up the veil and long robe to cover their pantsuits and miniskirts by next year. We have to be cautious, though, not to turn the War on Terrorism into a religious crusade. Even medieval crusades were less about religion and more about economics.

There are changes we can make that might soften the anger of the terrorists, however. Our dependence on oil, and the fact that some day all that Mideast oil will run dry, has got to motivate us to find alternatives, as we discussed last month. We also need to make better use of our human resources, because we have shortages of the personnel we need to maintain our schools and hospitals and to guard our infrastructure. Why pay high-priced outside contractors to do what all the young Americans could do if we had a universal draft. Sure, it would be unpopular, but those of us who are Viet Nam Era veteran draftees who served in the military know that anything less than a universal draft is totally unfair. Why should Joe, with a deferment, get the good job and seniority while Bob, who has to serve two years plus time in the reserves, have his career delayed?

Is Privacy the Victim?

Personal privacy is a victim of the War on Terrorism, suggest Eunice Moscoso and Rebecca Carr of the Atlanta Journal Constitution. They reported April 10 that the FBI collected the names, flight information, hotel, and other data about the hundreds of thousands of folks who went to Las Vegas for New Year's Eve. At the Congressionally sponsored commission seeking ways to prevent future terrorist attacks by studying what went wrong on Sept. 11, we heard witness after witness, from Condoleezza Rice to Richard Clarke, tell us that the FBI failed to connect the dots.

Is dot connecting the answer? Does the United States have to resort to Soviet-style internal passports and travel permits, spying, shoe sniffing, and laundry x-raying to prevent future terrorist attacks? Should we forget political correctness and accept racial profiling?

Carr and Moscoso cite Nadine Strossen, president of the ACLU, as saying that individual privacy is under assault in America. Personal information regarding each of us is available over the Internet. Employers monitor their employees' e-mail and Internet visitations. For employees on the road, the boss is apt to call their cell phones at any moment of the day just to see where the employees are, and what they are up to. They probably are sitting in traffic jams, trying to get to Starbucks.

Video recording cameras are everywhere. Sometimes that is good: they film all sorts of crimes taking place. Now the Justice Department has issued subpoenas to obtain the abortion records from hospitals and Planned Parenthood. So much for the privacy supposedly guaranteed by the Health Insurance Portability and Accountability Act of 1996 that was supposed to assure the sanctity of our medical records. The Patriot Act did get the FBI and CIA talking to each other again, but it also stomped out a whole lot of our privacy with size 18 shoes. Big Brother's out there, jest'a waitin' fer yah. (He's probably reading this right now.)

Can we have security without invasion of our privacy? It's not just foreigners who commit terrorist acts in the United States. The perpetrators of the Oklahoma City Federal Building disaster were as American as apple pie (the apple itself being an Asian import way back when). Back in the 19th century, some loony bird killed hundreds of children when he blew up a school in Michigan. (Heard it on Paul Harvey's "The Rest of the Story," and we all know how authentic that is.) Just profiling Arabs and Asians and Hispanics and neo-Nazis as they settle into our cities is not necessarily going to eliminate all the potential terrorists.

It has now been revealed that, in the summer of 2001, the administration waived visa photos for travelers from Saudi Arabia, and three of the Sept. 11 hijackers flew to the States without any interference at all. Then, after the attacks, Osama's relatives who were here were allowed to return to Saudi Arabia while the rest of us were grounded and our airlines were going broke. Who bothered to interrogate them? This kind of nonsense is quickly going to slam the door on our open society.

The United States is a nation of immigrants. As a first-generation American married to a 14th-generation American, we proudly trace our ancestry to some foreign land where things were not as good as here. Since 1891, European immigrants were screened through Ellis Island and, until 1952, when Congress passed a new immigration law over President Truman's veto that removed some racial barriers, we looked carefully at who the hell was crossing our borders, and what they wanted to do here. That is not the case today. Our borders are wide open to any kook with a bomb, and those are the dots that custom agents, the CIA, FBI, and the Department of Homeland Security need to be connecting. As noted last month, that is going to require more people to do the necessary screening.

Changes in the Insurance Industry

In the insurance industry, the responsibility for change includes a number of factors. First, it must rely less on investment income and more on accurate reserving. As it has discovered since 2000, the financial markets are far too volatile to support lowering premium rates to foster competition. That is what, for example, has triggered the medical malpractice mess. Premiums failed to keep pace with costs in the 1990s because insurers made up their losses with investment income. When that failed, premiums skyrocketed, and now we all are paying the price.

Insurers get absorbed by other financial conglomerates because they are viewed as big cash cows, ripe for milking. The more policies written, the more surplus figures seem to swell, allowing more for investments and profits, until the market drops. There is always that until. It is the combination of untils for which we need to prepare.

Untils include a variety of complications: The markets decline, hence investment income no longer fills the gaps for combined loss ratios over 100. Loss reserves are lowered artificially to make the quarterly statements look better so that investors will buy the stock. Losses come in greater volume than anticipated. There is another earthquake or an Andrew or a disease epidemic killing hundreds of thousands. Who knows what the next until might be?

One until, the industry says, is fraud; the industry is getting ripped off, to the tune of 12 to 20 billion a year. That's a good excuse for raising our premiums. It also might be a good reason to beef up the claim department with adequate staffing to fully investigate all potentially fraudulent claims, and to prepare for other untils. One of those untils is going to be terrorism.

Preparing for Terrorist Claims

Recently, I received a copy of the premier issue of Security Director News. The lead article was titled, "CEOs: Security Belongs in Corporate Boardrooms." Another front-page article tells that the government's General Accounting Office says that the Transportation Security Agency has a long way to go in perfecting security, largely due to screener turnover and shortages, and the lack of sophisticated equipment.

The insurance industry cannot rely on a bunch of bomb-sniffing dogs to counter the threats of terrorism. The industry that is going to have to pay to clean up the mess after it occurs needs to be proactive: it needs to staff its loss control departments with men and women who can go to the insureds with feasible recommendations of how to protect their property and personnel from terrorist attacks. How many insurers currently offer such services? There was not one mention in that entire magazine of insurance.

The best we in the claim industry can do is prepare ourselves for whatever comes along. That means that we need to seek out the best education in coverage, liability, and damages that we can get so that each loss can be correctly and quickly adjusted. The anticipated terrorism losses will be in a variety of arenas: life and health insurance claims for the dead and injured in terrorist attacks, workers' compensation claims for those who are in the course of their employment at the time of the attacks, and property insurance on the damaged vehicles, buildings, equipment, and infrastructure. A terrorist attack is like a massive natural catastrophic claim, to which local adjusters must respond even though their own homes and families are exposed, carrying on until cat teams arrive and get active.

In the home offices of insurance companies and the risk management offices of self-insured entities, including governmental agencies and institutions, the chaos will be of a financial nature. Terrorism is not like most perils; it cannot be experience-rated. Some insurers have responded to the potential by excluding terrorist acts. That will be interesting. We can be certain that every exclusionary word will be court-challenged. The lawyers will seek wealthy targets to sue. Government will step in to protect those entities. Government, itself, will become the insurer of last resort. Reserves may well exceed assets. Insurers will call on their reinsurers, who, in turn, will call on their own reinsurers. Many insurers will pay until they go broke. And still the mess will go on.

Sounds horrible, but to a large degree this is exactly what happened in the wake of Sept. 11, 2001. That was an isolated event. The Pentagon was not insured under a Commercial Property Form; we all were its insurers through our tax dollars on that loss. The World Trade Center, the four airliners, the life insurers, the employees who were killed or injured at or on their way to work, the vehicles destroyed when the towers collapsed, and the long-term illnesses caused by the toxic dust -- all this tells us what we can expect next time.

These claims ought not to be handled by some remotely located 1-800 claim center. Each needs hands-on, individual attention if the available assets are to be distributed accurately. The insurance industry may fudge figures, like the "12 to 20 billion lost annually to fraud" it claims, while it will not spend a 10th of that to hire and train an adequate adjusting staff. The staff member who handles stolen bicycle claims or assigns some contractor to handle a kitchen grease fire or appraise a damaged fender may be the one assigned a claim involving devastating damages and multiple deaths and injuries, as there will be no one else available to do it. That adjuster had better be prepared.

Do you have a comment on this month's topic? The Iconoclast would like to hear from you. Contact us at Claims, 5081 Olympic Blvd., Erlanger, KY 41018 e-mail: editor@claimsmag.com

Ken Brownlee, CPCU, is a former adjuster and risk manager, based in Atlanta. He now authors and edits claim adjusting textbooks.

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