Property Claim Services (PCS) is investigating the potential insurance and reinsurance industry loss from the recent terrorist attacks in Sri Lanka, to identify whether the event should be designated under its PCS Global Terror product.
PCS launched its Global Terror loss aggregation service in early 2018, since when no qualifying loss events have yet occurred.
The product is designed to track, aggregate claims data for and report on worldwide terror events that cause insured physical damage and business interruption losses of at least $25 million industry wide.
The devastating and coordinated multiple terror attacks on targets in Sri Lanka in recent days have the potential to become the first PCS Global Terror loss event.
The attacks struck on Easter Sunday, targeting churches, hotels and other locations, with over 350 now confirmed to have been killed in the tragic events.
Damage to hotels, as well as surrounding buildings, plus business interruption, are likely to drive the bulk of any claims that qualify under the PCS Global Terror loss aggregation product.
Tom Johansmeyer, Co-Head of PCS, discussed the event with us and explained that, “PCS is currently reviewing the events in Sri Lanka from last weekend for PCS Global Terror designation. The nature of the targets suggests that there’s sufficient insurance protection in place to make a loss of at least US$25 million (our threshold) a realistic possibility. Immediately after this event our team was in contact with insurers across the industry and we are monitoring for property damage and business interruption loss activity from this event. We need to start to see estimates before making that determination, but do know that PCS is currently working through the methodology we have in place for global terror events.
“What’s interesting is that the attack involved coordinated strikes on several different locations. And the use of explosives (more likely to cause physical damage) appears to be a change from past events, in which small arms were used to cause fatalities, but which posed less of a threat to insured physical structures. This shows that terror threats are not static. The most common self-criticism in the insurance industry is that we plan for the last event, not the next one. And after years of active assailant events, there’s been a tendency to follow that momentum and assume that coordinated attacks, explosives at multiple sites, and the risk of physical damage were inconsistent with the new norm. Among the immediate lessons our industry can learn from the unfortunate loss of life last weekend is the fact that history as a whole must be contemplated. Recent attack types may be recent, but the full collection of what is possible requires a review of decades of activity, as well as vigilance regarding new techniques that could help such attackers advance their agendas.
“Currently, we are monitoring for two specific types of information. The first involves whether there was a single perpetrator group involved, or at least a loose confederation of related groups. Additionally, we are monitoring the market for a sense of whether the insured loss industry-wide is expected to reach US$25 million. If these conditions are met, PCS Global Terror will produce an initial event designation bulletin. This would be our first event for PCS Global Terror since launching the service in January 2018. At the time of launch, we reviewed a pipeline bombing in Turkey but confirmed that it was unlikely to reach our event designation threshold. In 2016, PCS Turkey provided estimates on local terror attacks across a dozen villages, and our U.S. catastrophe loss database has several historical terror events, so although our latest service is new, PCS has decades of experience with this type of insured loss.”
It’s now become apparent that so-called Islamic State has claimed responsibility for the terror attack in Sri Lanka, although certain local terror groups are thought to have actually perpetrated the attacks themselves.
The National Insurance Trust Fund (NITF) of Sri Lanka, which provides terrorism insurance and reinsurance cover to local insurers and commercial entities, said it has already released 50 million Sri Lankan rupees to two hotels in the capital city Colombo to help them recover from the damage.
The Kingsbury and Cinnamon Grand hotels were among those struck by suicide bombers during the terror attacks on Easter Sunday.
The Shangri-La hotel was also hit in the attacks but is covered under a chain-wide insurance policy it is understood, so did not benefit from NITF coverage.
The NITF said that the majority of insurance claims related to the attacks are expected to come from the hotels that were struck by bombers, with these hotels also expected to be the major source of business interruption claims as well.
The NITF itself has a retrocessional reinsurance program in place, backed by global reinsurers. But at this stage it’s uncertain whether a claim will be made.