Insurance Article

Insuring against terrorism: What you need to know

The attacks of 7 and 9 January 2015 in Paris, aimed primarily at the Charlie Hebdo newspaper, the events in Paris on 13 November 2015, and the suicide attacks in Brussels last 22 March, have disrupted Europe’s security environment. The difficulties faced by national and international authorities in identifying and preventing the occurrence of such events, and the complex nature of the phenomenon, have raised the state of alert in many countries.
 
The final 2015 report by the Federal Intelligence Service considered jihadist supporters as the number one public risk for Switzerland, with no parallel risk at this time. The Swiss Anti-terrorism Task Force also anticipates an expansion of the jihadist terrorist threat to Swiss territory, since the country is not immune to an attack, despite its neutrality and its apparent peacefulness.
 
Furthermore, the internationalisation of business activities, the increase in the number of their employees travelling abroad on business, and the number of expatriates, result in the exposure of the assets of these companies abroad, and represent a non-negligible human risk.

Overview

60%

The increase in cost from terrorist attacks in 2014 compared to the previous year, for an estimated total of $52.9 billion, according to the Global Terrorism Index 2015, published by the Institute for Economics and Peace (IEP).

117

The amount invested last year in the national security agencies, in billions of dollars. Spending by the US accounted for 73 billion of that total. (Source: IEP)

Terrorism: an event with multiple consequences

Following the attacks of 11 September 2001, all Swiss insurers with membership in the Swiss Insurance Association agreed on a common definition of terrorism: "Terrorism is considered to be any act of violence, or threat of violence, against political, religious, ethnic, ideological, or similar targets. The act of violence or threat of violence tends to spread fear or terror in the population, or part of the population, or influence a government or state agencies."
 
Terrorism is characterised by its ability to generate immediate human and material losses in the near future. Following the occurrence of an attack, the domino effect it triggers affects several key parts of daily life, including the mobility of citizens and economic activity of the area or the country impacted. The global economic costs of terrorism have reached a historic high of 52.9 billion dollars in 2014, according to the Global Terrorism Index.
 
One of the difficulties in the management of post-attack compensation is the qualification of the event and, therefore, the possible compensation. The French government and various authorities have qualified the events of November 13 as an "act of war".
 

However, in the “traditional” Damages/Property Insurance, the insurer is not liable, without agreement to the contrary, for losses and damage caused by foreign war or civil war. This is why it is important to accurately describe the events and implement appropriate policies based on the nature of these events through a "terrorism" or "political violence" policy.

One example: the multiple attacks in Mumbai (India) in 2008

On 26 November 2008, ten members of an Islamic organisation carried out terrorist attacks in different locations of the city. They targeted public spaces, including the main railway station, restaurants, and the Taj Mahal Palace & Tower. The death toll of the attack was 164, with many others wounded, and there were considerable economic losses. In the days following the attacks, the main tourist attractions, shopping malls, and financial institutions were temporarily closed. Insurance companies would have been liable to cover $111 million in property damage and business interruption.

 
 
 
 

Overview of possible cover solutions

Buildings, their contents, and operating/rental income loss

  • There is no “terrorism” exception for Building/Property insurance from individuals and companies with covered values ​​less than 10 million francs for assets located in Switzerland and Liechtenstein. The terrorist risk, as well as the threat, are covered. However, any threat must be recognised as plausible by authorities followed by the adopting of appropriate measures such as the order to close stores, cordon off the area, etc. Proving the claim is the responsibility of the policyholder, including evidence of its operating loss; a day of closure may not necessarily generate actual loss over the month in question, for example.
  • In the cantons with cantonal insurance, private insurers are not a substitute for the insurance duty of the canton. Buildings are insured for damage resulting from terrorist attacks and disturbances, subject to specific excess and limited cover. On this point, it is necessary to refer to cantonal legislation, as limits may vary based on laws regarding fire insurance between cantons.
  • Starting with a total of over 10 million francs, additional cover limited to the assets located in Switzerland and Liechtenstein for additional premiums must be provided. Swiss insurers offering a "terrorism" guarantee must be reinsured and must communicate the precise location of the risk in order for the reinsurer to check to see that there has been no problem of accumulation on this risk area. A benefit limit can be agreed upon, with the policyholder and the insurer agreeing to provide only part of the value in this case.
  • For risks greater than 100 million francs, it is likely that insurers will require a co-pay. Demand is not particularly high for new policies in Switzerland, but the London market offers significant capabilities (over 2.5 billion dollars) through dedicated "terrorism" and "political violence" policies (which include strikes, riots, popular movements, revolutions, rebellions, insurrections, wars, civil wars, and terrorism). The reinsurance capacity of insurers in Switzerland is limited to 500 million francs for each accumulation zone and for all involved Swiss insurers that offer this additional terrorism cover. The accumulation zone is defined as a circular area with a radius of 250 metres. A maximum overall total of 500 million francs is made available 72 hours after an event. By calendar year, the total amount is at most three times the amount of 500 million francs.

Human losses and bodily injury

  • This type of damage is regulated by the assistance to victims law in the event of any injury to one’s physical, sexual, or mental integrity, provided that the incident was committed in Switzerland, even if the perpetrator of the offence is unknown. For Swiss nationals who are victims of these acts abroad, they may be compensated in Switzerland if it is the person’s principal place of residence, unless the citizen has already been adequately compensated under the law of the foreign country in question.
  • Individual "Accident" policy with "image management costs" extension.
  • Sub-limited "assault" and "illegal detention" extension for "kidnapping" policy.

Involvement of the civil liability of establishments where the attack has occurred

  • Terrorism extension for "Liability" policies.
  • Sub-limited "civil liability" extensions to "kidnapping" policies.

Preventive and temporary closure of establishments open to the public ordered by the authorities after the occurrence of an attack or for a maximum period of alert/financial loss

  • Administrative constraint" clause for "Property damage" and "operating losses" policies
  • "Cancellation/Activity closure" policies
  • "Non-consecutive operating losses in property damage" policies.

Operating loss following cyber-terrorism

  • "Cyber" policy

Threats and operating loss cover without direct damages

  • Recent release of specific guarantees, particularly on the London market.

 

 
Our authors
Sophie Di Meglio
Special Risks Director - Swiss Risk & Care
Emmanuelle Biehler-Margieri
Political and financial risks abroad - SIACI SAINT HONORE
Article published in july 2016