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Terrorism Insurance (by Maheen Javed) - Printable Version

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Terrorism Insurance (by Maheen Javed) - Muhammad Adnan Arshad - 02-02-2010

Terrorism is the use of fear and violence as a tool of propagating civil unrest and social paranoia. The main factor contributing to terrorism in Pakistan is violence as a result of political rivalry, sectarian, religious & ideological issues. Incidents of terrorism in Pakistan have increased manifolds during the last decade. Pakistan was rocked by 1.842 incidents of terrorism during the fourteen month period from January 2008 to March 2009. The interior ministry revealed that an average five terrorist incident took place in the country every day during these fourteen months. The highest number of 1,122 terrorist incidents took place in Balochistan.

NWFP was rocked by 692 terrorist incident, followed by 12 in Punjab, 09 in Sindh and 7 in Islamabad.
The most common tactic used by terrorists was firing, which constituted 21% of the total terrorist attacks. Rocket attacks & remote-controlled bombs constituted 22.6% . Suicide attacks, which perhaps are the most destructive, accounted for 2.3% of the total attacks.

Terrorists also employ kidnapping as a tactic to spread terror. 2.7% of the total terrorist attacks came under the head of kidnapping. In 2008, the country saw 2,148 terrorist attacks, which caused 6,825 casualties.

Suicide attacks alone killed up to 967 people and wounded or maimed over 2,000. of the 63 suicide attacks countrywide, the highest (32 attacks) occurred in the NWFP, killing and wounding over 1,000 Pakistanis; 10 in Punjab (201 dead, 580 injured), and 16 in Fata (263 dead, 497 injured), as per statistics complied by Pakistan Institute for Peace Studies.

More than 5,500 people were killed or injured in operational attacks. With the steady rise over the years in the number of terrorist attacks and the consequent increase in casualties, safety has become a major concern, not just for individuals, but also for businesses and government institutions all over Pakistan.

These statistics do not take into account the accompanying loss of property and other damages survivors in these attacks have to endure. In reality the repercussions of these disasters are immeasurable.

One suspects most of the affectees of terrorism have either not purchased terrorism cover at all, or have opted for a very limited indemnity level.. This is due to a variety of reasons which include scarcity of funds and a perception that it is very expensive. However, as compared to the unfortunate repercussion the price of insurance appears very cheap.

The increased occurrences of such events have made it mandatory for people to take protective measures against such mishaps. Be it business or household security measures must be taken, like appointing security guards for example.

Metal and explosive detectors could be installed in buildings, so as to reduce the risk of suicide bombers entering the premises. Everyone needs to be vigilant of suspicious people and activities in their surrounding and wherever necessary immediate action must be taken to prevent a possible terrorist incident.

These precautions can reduce the chances of loss due to terrorism. How-ever there is always the probability of an incident occurring despite the most stringent security measures. In such an unfortunate event, insurance is a tool which can provide a cushion against the financial impact of the loss. Securing one self against terrorism might be the smartest thing to do in the current scenario. Taking protective measures for business, property, and belongings is becoming important.

Terrorism insurance has gained tremendous importance over the years, especially after the 9/11 incident. Before the destruction of the Twin Towers, terrorism insurance was widely available at nominal premium rates. No one thought twice about providing coverage. However, the availability of terrorism insurance diminished with the collapse of the towers on that fateful day.

The insured financial loss resulting from this terrorist incident was estimated at USD 32.5 billion. This single loss had a far-reaching effect on the insurance and re-insurance sector and the capacity for underwriting terrorism risk all but disappeared. The major players adopted the wait and see approach till they had enough data to predict the trend of losses due to terrorism, During this period from 2001 up till 2008, most insurance companies offered only very limited coverage for terrorism based on the capacity of each company without any substantial reinsurance support.

Beginning in early 2008 with rising demand for terrorism coverage in Pakistan, certain leading insurance in Pakistan have been able to enter into arrangements with international reinsures. These arrangements enable the insurance to provide sufficient capacity to meet the requirements of the larger business houses and multinational organizations in Pakistan. Although the coverage is still rather expensive in comparison to the standard Fire and Allied Perils coverage for Property, it must be evaluated in view of the rising frequency of terrorism incidents and the widening scope of the possible targets.

New Jubilee Insurance Company Limited is one of the few companies in Pakistan offering 100% insurance on full property value. In the current turbulent times, terrorism insurance is perhaps the best protection that property owners can obtain to protect their assets against this rising peril. Some are even tempted to say that at present terrorism insurance is more important than the conventional property insurance covering fire and allied perils.

(SourcePakistan & Gulf Economist)
by Maheen Javed