9/11 Boosts Focus On Interruption Risks
New Orleans
The destruction of New Yorks World Trade Center by terrorists has pushed business interruption exposures much higher on the chief financial officers agenda, with the majority "now more concerned by the costs of being temporarily out of business than physical damage to property" following an attack, a survey for Lloyds of London has found.
Lloyds officials estimate that some $10 billion–roughly 25 percent of the total World Trade Center loss–can be attributed to business interruption coverage.
"Once upon a time, when people thought about insuring terrorism, they only thought about property insurance," said Julian James, director of worldwide markets at Lloyds. "Now its clear that business interruption has become just as important."
Indeed, the Sept. 11 attacks radically changed the attitudes of U.S. CFOs towards terrorism exposures, sending demand for coverage of domestic assets soaring. The survey of 50 Fortune 1000 CFOs on behalf of Lloyds found that two out of three firmly believe their companys U.S. assets to be more of a terrorist target now than are their overseas people and properties.
While this development might appear to be obvious following the devastating events of Sept. 11, it still represents a "sea change in attitude towards the need for terrorism coverage in the United States," according to David James, terrorism underwriter for Ascot Underwriting at Lloyds.
Historically, the need for terrorism coverage has been focused on properties in countries "characterized by political and civil instability, such as in South America and the Middle East," Lloyds noted in a statement released with its survey results here during the Risk and Insurance Management Societys annual conference.
"Prior to Sept. 11, the U.S. market accounted for as little as 1 percent of the typical terrorism underwriters book of business," Lloyds noted. "But after Sept. 11, the figures derived from North America for Ascots terrorism business has grown to over 80 percent."
More disturbing for insurers is the fact that 64 percent of CFOs surveyed said they have "little or no confidence in the insurance industrys ability to provide a comprehensive package to protect against any future terrorist attacks," Lloyds said.
Making matters worse is that risk managers must confront the threats posed by "new-style terrorists," who, unlike their "old-style" counterparts in the 1960s through the 1980s, are not merely looking to kidnap or kill a relatively small number of people to attract media attention to their grievances and cause, according to L. Paul Bremer, head of the crisis consulting practice for Marsh in New York.
Instead, the "new-style" terrorists are out to "kill as many people as possible" as part of an "asymmetric war against countries like the U.S. that are no longer vulnerable to conventional military attacks," he explained at a Marsh client breakfast during the RIMS conference.
As a result, he said, "crisis management today needs to be elevated," adding that the "good news is that crisis management can be taught, can be learned, and can be put in place quickly."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 29, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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