The rapidly evolving nature of the global terror threat is proving challenging to the entire re/insurance value chain, according to reinsurance broker Guy Carpenter, although the industry is well placed to meet its demands head on.
The Marsh & McLennan Companies subsidiary claimed that now more than ever, brokers and underwriters must use their expertise and solutions to keep insurers and citizens protected as terrorists deploy new types of threats, modes of attack, and violent and disruptive means.
Over the last two decades, terrorist attacks have shifted from targeted, large-scale events like the World Trade Centre attacks and IRA bombings to smaller, less sophisticated acts across all geographies that aim to induce maximum casualties and fear.
Guy Carpenter noted that the terrorist threat is likely to continue to evolve as new technologies and opportunities, such as cyber-attacks, reveal themselves, and as online connectivity allows terrorist organisations to quickly adapt, reinvent, and spread their methodologies around the world.
Across the European Union, terrorism is estimated to have cost €180 billion in gross domestic product growth between 2004 and 2016, and while it ultimately falls to political and industrial arenas to build capacity against this threat, the re/insurance sector will also have an important role to play.
To remain in tune with developments, re/insurers must gain insights from academia and observers on how the peril is changing, keep alert to new products in the market, unlock new sources of capacity, and help clients keep their portfolios relevant to their consumer base, Guy Carpenter said.
Charles Whitmore, Managing Director at Guy Carpenter, said that it was now crucial for companies to develop new products with enhanced coverage to help clients realign property and casualty (P&C) re/insurance protections with the changing terrorism peril.
“The (re)insurance industry needs to ensure that protection covers and solutions evolve to fit the full breadth of attack methodologies and narratives,” he explained. “Today, lone-wolf attacks in public places aim to cause fear and loss of life as much as, if not more than, property destruction.”
Most insurers are currently well placed to grow their terrorism offerings both geographically and in terms of coverage, Guy Carpenter said, as they can access new sources of capital in combination with traditional reinsurance capacity.
However, for the capital to be released and matched with the right risk profile, improved understanding and modelling of the peril will be crucial, in addition to overcoming the challenges of unlocking and creating end-consumer demand and the distribution process.
The next phase of the terrorism protection market’s development will also be reliant on state terrorism pools and the open market, whose participation will likely ensure that the protection offered to economies and individuals by the market is relevant and fit for purpose.