IIC.Terrorism

This reading, Terrorism Risk and Insurance, is from the Insurance Institute of Canada. It covers the insurance industry's response to changes in terrorism. The primary change is the nature of the attacks. The attack on 9/11 was a large-scale attack with high casualties and property damage, but more recent terrorism incidents have involved lone, armed perpetrators.

  Forum

Study Tips

Since this is a new reading for 2019.Fall, there is little history of exam questions. That makes it harder to predict likely questions, but the questions on new readings are often easy. That means if you put in the time, it should be easy points. It's a short reading and there are no calculations, just memorization.

On previous sittings of Exam 6-Canada, there were 2 terrorism readings but it was U.S. material and it had a different emphasis. Those readings have been archived in the following links: Webel1.TRIA and Webel2.TRIA. You could spend 2 minutes scanning the BattleTables to see what was asked on past exams, but like I said, the emphasis is different so I don't know how much value that would have. (It depends on how lazy the exam committee is. If they are very lazy, they may just copy problems from past exams!)

Estimated study time: 1 day (not including subsequent review time)

BattleTable

• this reading is new for 2019.Fall

Questions held out from Fall 2019 exam: #11. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.)

reference	part (a)	part (b)	part (c)	part (d)
no questions prior to fall 2019

Full BattleQuiz You must be logged in or this will not work.

  Forum

In Plain English!

Background

Start by reading the 1-page introduction directly from the reading. The link is provided below:

IIC.Terrorism Introduction (from source text)

Since this reading specifically covers the insurance industry's response to changes in terrorism, a logical starting point is as follows:

Question: how has terrorism changed in recent years

organized attacks → lone actors

• in the past, attacks were carried out by organized terror groups like al-Qaeda
• more recently, attacks were carried out by lone actors who were inspired and radicalized by organized groups

bombings → armed attacks

• in the past, attacks were often large-scale bombings
• more recently, perpetrators have used vans & guns

state targets → civilian targets

• in the past, targets were police, military, or government
• more recently, targets have been civilians in streets, shops, or concert venues

If the nature of attacks has changed then the types of exposures have also changed.

Question: how has the shift from state targets to civilian targets changed the type of damage inflicted

• property damage is lower
• casualties and suffering may be higher
• indirect costs to business (business intertuption)

Government Responses

Government responses have varied by country:

• the U.S. government essentially acts as a reinsurer for private coverage (discussed further below)
• France, Israel, Spain have mandatory terrorism pools
• the U.K. has an elective pool (although a bank might require terrorism insurance as a loan condition)

(Note that the source text states the U.K. pool is both mandatory and elective. This is obviously an error.)  ← shout-out to cb!

There is no terrorism pool in Canada because private terrorism coverage is already readily available at reasonable cost.

The reading describes the original U.S. government program from 2002, TRIA, or Terrorism Risk Insurance Act. Congress then passed an updated version in 2015 called TRIPRA, or Terrorism Risk Insurance Program Reauthorization Act. The issue in the U.S. was that after the 9/11 terrorist attacks, reinsurers suffered such great losses that they withdrew from the market and primary insurers began excluding terrorism coverage.

Question: what was the original purpose of TRIA

• ensure availability & affordability of private coverage
• give private markets time to stabilize
• build capacity to absorb future losses

There is a long list of differences between TRIA and its successor TRIPRA but most of are technical like changes in loss-sharing between between private insurers and the government. (These differences are not mentioned in this reading.) The spirit and intent didn't change.

Question: briefly describe the U.S. government terrorism program TRIPRA

• requires insurers to offer commercial P&C terrorism coverage for certified acts of terrorism
• costs are borne privately up to a certain level, then government steps in as reinsurer
• certain conditions are required before coverage is triggered under TRIPRA

Question: identify the triggers for TRIPRA

• the act must satisfy the definition of terrorism (not covered in this reading)
• the act must be certified by various government bodies
• losses must exceed a specific monetary threshold

I'm really not sure how much detail you need to know on TRIPRA. I included it because that topic had been tested from readings no longer on the syllabus, but that overlap with this reading.

mini BattleQuiz 1 You must be logged in or this will not work.

Terrorism Coverages

If an insurer is going to cover terrorism, there must be an understanding of exactly what it is that's being covered. In the U.S., an attack must be certified as an act of terror. In Canada, or at least by the author of this reading, the definition of terrorism is:

• an act committed for RIP purposes (Religious, Ideoogical, Political) – but that's a very broad definition
• note that this does not cover riots, war, or cyber-terrorism, but you can buy additional coverage for those risks if necessary

RIP is a towering example of a memory trick that fits the question perfectly: Terrorism can rip lives apart.

Question: what broad purchase options are available for terrorism coverage in Canada

• can be for first or third party exposures
• can be standalone terrorism insurance or an endorsement to a property policy

Question: identify the benefits of a standalone terrorism policy

• higher limits
• separate limits for specific locations (a company may have an office in a country or city that poses a risk for civil insurrection)
• multi-year coverage
• business interruption can be included

Note the importance of business interruption with recent lone actor attacks that do little property damage. A Canadian example is the van attack in Toronto in April 2018 that killed 10 people and injured 16. There was little property damage but the area was closed off for investigation which caused interruptions for businesses in the area. These business were otherwise unaffected so terrorism insurance that covered only property damage would not have been effective.

Question: identify possible coverage enhancements to basic terrorism coverage [Hint: BEPARN - worst hint ever]

Business interruption

Event cancellation

Political violence (G20 protests in Toronto in 2010)

Active assailant situations (not politically motivated → covers loss of attraction for location)

Reservation cancellation

Nuclear (part of NCBR – Nuclear, Chemical, Biological, Radiological terrorism)

Honestly, the above question would be a pretty terrible exam quesiton! But since there's no history of exam questions, Alice coaxed me into including it. Blame Alice! Alternate hint: NEAR-BP because if you have empathy, terrorism raises your Blood Pressure to NEAR high levels. (shout-out to NZ!)

Question: in broad terms, how is terrorism insurance priced

• generally a percentage of the property premium (so it isn't very expensive)

mini BattleQuiz 2 You must be logged in or this will not work.

Managing Terrorism Risk

Managing & mitigating terrorism risk is an indispensable complement to the compensation of victims after an attack has occurred. The best scenario is to prevent an attack. But if an attack occurs, we must have procedures in place to mitigate the damage.

Question: how has assessing terrorism risk become more challenging in recent years

• it's easier than ever for a lone actor to commit a terrorist attack (it could happen anywhere, anytime)
• the spectrum of impacts has expanded (not just 9/11-style attacks, but could be a van driven on the sidewalk which anyone could do)

Question: identify considerations in assessing terrorism risk for a business

• attractiveness of location as a terror target (# of employees, profile of business)
• accessibility of location (security, # of entry points)
• financial impact (risk to assets, business interruption)
• crisis management framework:

   - are threats investigated

   - are there evacuation procedures

   - is there post-event counselling

Final question: You know how the CAS says they like to focus on understanding versus memorization. Well, something near the end of the reading struck me as a decent question that ties this reading to the earthquake reading. Both terrorism and earthquakes can be catastrophic, so it stands to reason there are similarities between them.

Question: identify a similarity in assessing risk between earthquake and terrorism

• both use models to determine a PML or Probable Maximum Loss

mini BattleQuiz 3 You must be logged in or this will not work.

Conclusion

Read the conclusion from the source text. For your convenience, here's a link to the conclusion.

IIC.Terrorism Conclusion (from source text)

Full BattleQuiz You must be logged in or this will not work.

  Forum