On the 22nd March, terrorists subscribing to Daesh’s apocalyptic narrative struck once again, this time in Brussels. Our thoughts are very much with the Belgian people at this desperate time. Tragically, Brussels joins a growing list of cities, across the world, which have witnessed despicable terrorist acts in recent months and this pattern of events is becoming all too familiar.
Economic line of attack
Daesh is now prosecuting an economic line of attack as well as a physical one. This degradation of economies will increase the divide and mistrust between communities and increase radicalisation on both sides; all of which will provide more fertile recruiting grounds for extremists. This now appears to be a central part of their strategy to expand the Caliphate. The efforts of the security services in the UK have thwarted significant attacks here over the last couple of years; notwithstanding this, the insurance industry must stand ready if an attack does happen in the UK.
Crowded places are targeted to cause mass casualties. By coordinating multiple and simultaneous attacks, emergency response teams and agencies are overwhelmed and fear and panic is multiplied. However, these attacks were also different to those others which have recently been undertaken. By targeting Zaventem airport and Maelbeek Metro station, Daesh struck at the heart of Belgium’s’ national infrastructure. It attacked its economy as well as its people. This broadening of Daesh’s modus operandi, from its previous focus on western lifestyles, in particular cultural and entertainment sites, is significant.
Excluding the tragic human loss of life, symbolic attacks on critical and national infrastructure, such as Zaventem airport, cause as great, longer term economic damage as they do physical. They prevent the movement of people, cause businesses to shut down and decimate tourism. In this regard, we saw another capital city brought to a standstill last week, with major transport delays and Zaventem airport remaining closed for over a week, which resulted in thousands of cancelled flights and lost business economic opportunity as well. The full economic toll will take some time to be quantified, but it’s not unrealistic to put the figure at many hundreds of million Euros. As a reference point, analysis undertaken by the Institute for Economics and Peace, the economic costs from global terrorism in 2014 totalled $52.9bln; this figure is larger than the economic damage caused by 9/11. Furthermore, research completed by the Cambridge Centre for Risk Studies, stated that the combined economic losses caused by the Charlie Hebdo and Batacalan theatre attacks are estimated to be between $9bln and $12bln.
The insurance market’s role
The insurance sector has a central role to play in the Prevent and Protect strands of the Government’s Counter Terrorism Strategy (CONTEST), as well as in the recovery stage of any attack. Central to this is ensuring that businesses understand the nature and impact of the contemporary terrorist threat and that there is as broad an uptake of terrorism insurance as possible. Tragically, attacks cannot always be prevented, so we must do all we can to ensure that large and small businesses, as well as the economy as a whole, are prepared to mitigate the risk and have business continuity plans that deliver the resilience necessary to bounce back.
SMEs are often those worst affected by terrorist attacks, whether they are directly or indirectly impacted. Post any attack, cash flow dramatically falls away. Often they do not have the appropriate insurance cover in place nor the cash reserves to recover and return to profitability. After the initial loss of life, there is a secondary economic effect on SMEs that are at risk from significant business interruption. A US Congressional report stated, post 9/11, that 18,000 small businesses were either dislocated, disrupted or destroyed after the attacks on the World Trade Centre. Cordoned off streets, clear up operations, rebuilding programmes, lower footfall and decline in tourism directly impact on SME revenues and ultimately GDP.
Improving our resilience
If the Brussels attacks and last year’s attacks in Paris represent an expansion of Daesh’s strategy, then we must be innovative and agile in our response. If insurance propositions are no longer able to respond to the key risks facing businesses, then the insurance industry must examine how it can adapt its products. Shops, hotels and restaurants in Brussels will already have been severely impacted by last week’s attacks; many of those both inside and outside of the cordon may find their insurance cover does not respond to all or part of their loss. This situation could be replicated in the UK, depending on several factors: type of policy bought, whether there had been an incident causing property damage or the proximity of the business to terrorist event(s). Targeting critical national infrastructure, such as airports and transport links, acts as a multiplier causing a ripple effect on the economy and the livelihood of businesses dependent on them for their custom.
If we are to continue to evolve to match the threat then we must consider whether the current business interruption element of the insurance products available is fit for purpose and, if not, how we can, as a market, respond to ensure that that gap is covered. Pool Re is looking closely at how best provide optimal support and advice to our members so that they can be better informed about adapting current insurance products to meet the changing nature of the threat. In collaboration with thirteen other catastrophe pools around the world, and in conjunction with OECD, Pool Re is now at the forefront of sharing knowledge and best practice with our international colleagues. This information will not just inform the counter terrorism response, within the UK and global insurance markets, but also improve our collective resilience to terrorist attacks.