Last month's terrorist attacks against multiple targets in Mumbai could represent an insured loss of up to $600 million for property and liability claims. But while the horrific event might prompt rate hikes specifically for terrorism coverage–especially in India–it should not impact the overall commercial insurance market, industry officials say. The attacks spread over four days late last month resulted in the deaths of over 170 people, and injured nearly 300 additional victims.

In a “RISK-i” report on its Cat Central site, the Guy Carpenter reinsurance brokerage noted that sites in the city that were hit included two luxury establishments (the Taj Mahal Hotel and the Oberoi Hotel), along with the popular Leopold Caf?, Chhattrapati Shivaji (a major railway hub), Cama Hospital and the Nariman House Jewish Center, which were badly damaged by explosions, fire and gun battles.

Guy Carpenter said the 565-room Taj Mahal Palace and Tower Hotel, damaged by sporadic fires, is owned by the Tata Group, which has vowed to rebuild the damaged areas of the building.

“We will rebuild every inch that has been damaged in this attack, and bring back the Taj to its full glory,” promised RK Krishna Kumar, vice chairman of Indian Hotels, on the Tata Web site.

The Leopold Caf? reopened days after the attack.

In London, Gordon Woo, chief architect of the Risk Management Solutions terrorism model, said cities that have “iconic importance” because they are of political or economic significance are top targets, rather than “villages in the middle of nowhere,” because terrorists see them as a way to put pressure on governments.

“Mumbai was always was a high-profile target. Unfortunately it has a history of terrorist attacks…This is not a surprise,” he said.

The multiplicity of the attacks on 10 Mumbai locations, he said, was similar to the March 2004 Madrid train station bombings, where several hundred died from small package bombs that were placed in multiple locations.

While the damage in Mumbai–where the attackers cut loose with assault rifles and grenades–was substantial, he noted, it could have been far worse if the attack had involved planting trucks with high explosives.

The Mumbai attacks might spark a rise in premiums specifically for terrorism coverage, but should not impact the overall insurance market, one expert suggested.

“In terms of losses, the attacks in Mumbai are not a market-turning event for the insurance industry generally,” according to Alex Clayton, executive director at Willis Global Markets International in London.

“However, the losses may significantly impact the terrorism insurance market,” he added. “It now seems that the hotels are insured against the peril of terrorism through the Indian terrorism pool, which in turn is reinsured in London.”

“The potential reinsurance losses to the London market will certainly lead terrorism underwriters to have another look at their terrorism rates for India–which have, up until now, been very competitive,” Mr. Clayton said, responding to questions in an e-mail.

“The terrorism losses come at a time when most of the markets are renewing their reinsurance programs–including their terrorism reinsurance programs,” he noted.

“If the markets are faced with increased reinsurance costs along with potential losses from the Mumbai attacks, the result may be a hardening of the terrorism insurance market,” he added. “However, at the moment it is very much, 'wait and see.'”

Specific to India, he said the events will force underwriters to look at their rates for terrorism insurance there–especially because premiums have been mired in a soft cycle for the past few years.

Another element that the attacks in Mumbai underscored, he mentioned, is the need for combined insurance products covering physical damage, business interruption, kidnap and ransom, and accident and health exposures subsequent to an act of terrorism. Currently all coverage, though available, must be purchased separately, he noted.

While it is currently unclear who insures the Mumbai exposures–especially the two luxury hotels that were damaged–there is expected to be “significant business interruption losses” as both facilities remain closed “for the foreseeable future,” according to Mr. Clayton.

In addition to the direct loss from the attack, he believes there will also be contingent losses.

For example, he noted cancellation of a one-day cricket series and other tours, “notwithstanding the intangible losses to the economy of a reduction of tourism, etc.”

Another industry source–who requested his name not be used because information remains sketchy at this point–said it does appear most of the losses will be assumed by India's insurance pool, which is reinsured through Lloyd's, but the property losses are not anticipated to be large.

Currently, general insurance markets remain unaffected by the event, and renewal placements are still being made with no apparent contraction in the marketplace, the source noted.

Special Reports /

Mumbai Loss May Hit $600 Million, Likely Prompting Terrorism Rate Hike

Related Stories

Recommended For You