terrorism coverage: lessons learned from the boston marathon bombing
DESCRIPTION
Terrorism Coverage: lessons learned from the Boston Marathon bombing. Tim Press & Sean Jackson. • Tim Press, Head of Special Risks, Miller Insurance Services LLP Tel: 011 44 20 7031 2685 Email: [email protected] - PowerPoint PPT PresentationTRANSCRIPT
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Terrorism Coverage: lessons learned from the Boston Marathon
bombing
Tim Press & Sean Jackson
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• Tim Press, Head of Special Risks, Miller Insurance Services LLPTel: 011 44 20 7031 2685 Email: [email protected] Tim has worked in the insurance industry since 1988 and joined Miller in 1996. He is Head of the Special Risks team which covers product areas such as political risks, contract frustration, trade credit, terrorism, political violence and supply chain insurance.
• Sean Jackson, Director, IMA Global Risk, IMA Corp.Tel: 913-982-3471 E-Mail: [email protected] Sean joined IMA in 2013 and has provided risk solutions to some of the largest global companies. As Director of IMA’s Global Risk Division, Sean is responsible for IMA’s multinational clients who travel, trade or have operations overseas. He has 22 years of experience assisting companies in managing their exposures all over the world. His unique experience and expertise crosses all industry segments and coverage lines.
• Christine Hoppe, Risk Manager, CORAM Health Care Tel: 303-672-8746 Email: [email protected] Christine has been a risk professional for over twenty years. In that time, she has worked for insurance carriers, brokers, TPAs and as a risk manager. When not is the office you will find her on the running trail. Christine also competed in the 2011 Boston Marathon. She is currently employed at CORAM Health Care (recently acquired by CVS).
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What to Expect
After attending this session you will have gained an understanding of:• How the Boston bombings add to the TRIA debate• TRIA/TRIPRA• Alternatives to TRIA - stand-alone terror market and political violence• How to expand coverage for international exposures
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Boston Marathon bombing - timeline
Source: Flicker by Aaron Tang licenced under CC BY 2.0
Source: FBI/AP
April 15, 2013 2.49pm: Two bombs detonated
15 block zone shut off by police
Hunt for the Tsarnaev brothers
April 19 –Boston is still in lockdown
April 19, 8.50pm – one suspect dead, the other captured
1 2 3 4 5 6
Source: Massachusetts State Police Air Wing
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Boston bombing in numbers
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• Property and casualty insurers paid a total of USD1.9m in bomb-related claims
• Nearly half of 133 business interruption claims rejected• 11 of 27 claims for commercial property damage rejected• 72 hour exclusion
Source: Division of Insurance
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Did TRIA respond?
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• Some shops directly impacted by the bombings, such as the Forum restaurant on Bolyston Street, were still closed more than 45 days after the event
• Stores on Bolyston Street that were undamaged by the blasts were closed for nine days as the FBI carried out their investigation into the bombings
• Other businesses across Boston shut their doors as state authorities closed down the city’s transport system and issued a shelter-in-place order during the manhunt.
• Tsarnaev brothers initially labelled terrorists by Obama and the media• However not classified as a “certified act of terrorism”• Leads to questions on process and timing of terrorism certification under
TRIA.
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Terrorism A dangerous world
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Terrorism insurance pre 9/11/01• Risks in various worldwide locations including:
o Middle East/ Israel United Kingdom o Sri Lanka Spain o Colombia Kenyao South Africa Tanzania
• Otherwise general “all risk” property cover included terrorism, excluded war
• Some government programs/schemes:• Consorcio de Compensación de Seguros• Pool Re• SASRIA
• Otherwise terrorism coverage written by the political risk market
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Key US terror events pre 9/11
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Source: Swiss Re & Insurance Information Institute(1) Includes bodily injury and aviation hull losses. Updated to 2013 dollars by the Insurance Information Institute using the U.S. Bureau of Labor Statistics CPI Inflation
Calculator(2) Differs from inflation-adjusted estimates made by other organisations due to the use of different deflators
February 26, 1993 – New YorkBomb explodes in garage of World Trade Center.Insured property losss – $822mfatalities 6
April 19, 1995 – Oklahoma CityTruck bomb in front of government buildingInsured property loss: $192mfatalities 166
Oklahoma City National Memorial
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TRIA – overview
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• Terrorism Risk Insurance Act (2002) passed fourteen months after 9/11 as a federal backstop for insurance claims related to certified terrorism events
• Terrorism Risk Insurance Program created – a risk-sharing plan between federal government and the insurance industry
o Created in response to commercial policyholders inability to secure terrorism coverageo $100bn of annual reinsurance protection o All commercial property and casualty policies to cover terrorismo Year 1 – 27% businesses bought terrorism insuranceo By 2012 – 60% (higher in metropolitan areas)o Reauthorised twice – 2002 and 2005o 2014 – third time it has come up for reauthorisation
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Evolution of TRIA
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2002 – TRIA (expired Dec 31, 2005)
2005 – TRIA extension (expired Dec 31, 2007)
2007 – TRIPRA (expiring Dec 31, 2014)
Acts which qualify under the program
Act of terrorism resulting in damage within the U.S. or to U.S. aircraft, ships or diplomatic missions. Individuals must have conducted the act of terrorism for the purpose of coercing the U.S. civilian population or influencing U.S. government policy.
As at 2002 Distinction removed between foreign-domestic terrorism
Lines coveredCommercial P&C- Excess insurance- Workers’ compensation- Surety insurance
AmendedCommercial P&C- Excess insurance- Workers’ compensation- D&O
As at 2005
ExclusionsPersonal lines, medical malpractice, title insurance, mortgage guaranty insurance, federal crop insurance, health insurance, life insurance, national flood insurance and financial guaranty insurance
Additional exclusions:Commercial auto, burglary and theft, reinsurance and surety, professional indemnity (except D&O), farm owners multiple peril
As at 2005
Program trigger USD5m After March 31, 2006 – USD50m2007 – USD100m
USD100m
Insurance Marketplace Aggregate Retention Amount
USD15b 2006 – USD25b2007 – USD27.5
USD27.5
Post Trigger Federal Assistance
90% 85% 85%
Individual Company Deductible (% of premiums)
7% 2006 – 17.5%2007 – 20%
20%
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Advantages/Disadvantages TRIA
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Advantages - TRIA Disadvantages - TRIA
Stabilised the economy & market post 9/11
Untested regarding claims
Carriers obliged to offer Relies on government certification
Large limits available Uncertainty regarding process
More capacity available in problem areas than stand-alone
Only covers U.S. risks
No developed stand-alone terrorism market for Workers Compensation
Pricing inconsistency
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Advantages/Disadvantages Stand-alone Terrorism Placement
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Advantages – stand alone Disadvantages - stand alone
Clarity of coverage Limited capacity in “problem” zones (zip code aggregates)
Breadth of coverage and global placement
Proven claims payments and handling
Capacity secured
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Who is buying terrorism insurance?
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Industry sectors buying TRIA or stand-alone:• Real estate (91%)• Public sector & Financial entities (72%)• Media companies & entertainment (82%)• Tech firms (55%)
• 75% of top 20 US brands are buying stand-alone terrorism coverage• Fortune 100
• > 70% of companies are buying stand-alone terrorism • > 55% of companies are buying global political violence
Source: Interbrand & Miller research 2013
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Stand-alone underwriting - considerations
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• TIV and actual locations• Management of underwriter aggregate• Limit required
• Highest aggregate areas nationwide (source: QBE Insurance (Europe) Ltd)
• New York• Times Square /Rockerfeller Center / Wall Street/ NYSE )
• Chicago, IL 60606/ 60611• San Francisco, CA • Houston, Harris County• Dallas, TX 75201• Seattle, WA 98188
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How Terror risks are aggregated
Page 17Source: QBE Insurance (Europe) Ltd
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Denver ?
Source: QBE Insurance (Europe) Ltd
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Recording of this session via any media type is strictly prohibited.Source: QBE Insurance (Europe) Ltd
Terror in the US…
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Why buy terrorism exclusively?
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US corporations with revenues of over $1bn have become more international with 70% having overseas property exposuresSource: Miller research 2013
Paid claims• Lebanon War 2006• 2010 Thai political protests • Egyptian Revolution of 2011 • Arab Spring• Westgate Mall Nairobi, Kenya
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The devil is in the definition
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TRIA renewal debate
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• Policyholders are seeking and want alternatives• Billions of dollars in private insurance capacity available• Stand-alone offers coverage for companies with foreign exposures• AM Best research re: non renewal of TRIA – only 4% of 220+ insurers
examined failed the stress test, due mainly to workers compensation• Could a large-scale attack prove too costly for the private market – in
absence of TRIA?• Nuclear and cyber coverages
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TRIA outlook, rumours & uncertainty
• All percentages, thresholds and retentions subject to change • Possible inclusion of elements like cyber-terrorism coverage/NCBR • Certification process redrafted ?• Only workers comp cover, no property coverage• Will likely renew with different coverage triggers • Imminent or to the wire….• Many Firms are now looking to the stand alone market for alternatives
and for certainty of coverage post December 31, 2014.
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US Terrorism coverage options
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• Continue with property all risk / TRIA offering• Secure with stand-alone terror option• Combination of property all risk / TRIA & stand alone coverage• TRIA captive wrap with options.
• Capacity commitment if TRIA coverage is already in place
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Conclusion
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• Terrorism is a persistent threat – over 200 attacks in the USA between 2001-2012
• Boston bombing aftermath shows that TRIA leaves some questions• Market has shown it is able to cope with large-scale losses, e.g. Hurricane
Katrina• TRIA, what next and uncertainty• Look at other options to cover your U.S. and international exposures
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Questions & Final Comments
The future of TRIA?
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