Planned, deliberate, intentional and unpredictable: the very nature of terrorism makes insuring the economic losses it causes extremely challenging. As risk modelling based on past experience is often insufficient, a rudimental basis for underwriting is often hard to develop. The risks associated with terrorism remain at the boundaries of insurability. Terrorism pools and national backstop solutions in cooperation with the (re)insurance industry are key instruments in addressing the threat.

Global terrorism is a constantly changing peril. The attacks on 11 September 2001 in the USA made it painfully clear that terrorism knows no borders and that coordinated attacks could cause loss of life as well as property damage on a massive scale. Since the weakening of the Islamist terrorist network al Qaeda and the emergence of the so-called “Islamic State” (IS) based in war-torn Syria and Iraq, there has been a trend towards smaller-scale strikes causing significant loss of life and injuries, yet limited property damage.

In Europe, where IS has recruited significant numbers of fighters for the conflict in Syria, trained and combat-hardened returnees represent an ongoing threat. Recent examples of incidents claimed by IS on European soil include attacks in Nice, Berlin and London, all of which involved vehicles used to target pedestrians. In July 2016, a lone assailant deliberately drove a 19-tonne cargo truck into crowds of people celebrating the French Bastille Day national holiday, killing 86 people and injuring 458. The year saw a further similar event in December, when an attacker ploughed a freight lorry through a Christmas market in Berlin, leaving 12 people dead and 56 others injured. In March 2017, more than 50 people were injured, four fatally, when an attacker deliberately drove his car into the pedestrian path on Westminster Bridge, London. A second incident took place in June, when three assailants travelling in a van rammed pedestrians on London Bridge and then drove to Borough Market, where they proceeded on foot whilst attacking people with knives. Eight people died and 48 were injured.

These examples demonstrate how the face of terrorism is changing: the relatively simple methods and means used (vehicles, and knives rather than explosives or automatic weapons) are easily accessible and require little or no training. In addition, this style of attack can be easily carried out by a single perpetrator. For these reasons, similar small-scale incidents should be expected in future.

Such attacks, often carried out by (self-)radicalised individuals, have driven demand for business interruption and contingent business interruption covers. Stakeholders at risk include the hospitality and entertainment industry, large industrial and manufacturing companies, utility providers as well as retail and transportation businesses.

In many cases risk is related to proximity to potential targets, such as embassies, government buildings or other high-profile sites. Especially in urban areas, companies or facilities may face significant denial-of-access risks, even if the potential target of an attack is not an immediate neighbour. While these factors should be taken into account in assessing the exposure, recent “lone wolf” attacks have shown that terrorism can strike virtually anywhere.

The insurance industry in cooperation with national governments can play a key role in ensuring societies remain resilient in the face of the threats.In view of the challenges of insurability and supply of capacity, national and transnational terrorism pool solutions are a key element for a vibrant and stable terrorism insurance market. Accordingly, Munich Re strongly favours and supports these pools and similar backstop solutions. Where no national pool solution exists or the insured’s needs exceed the scope of cover offered by pools, we also provide (re-)insurance covers on a limited basis.

Munich Re Syndicate Limited at Lloyd’s, part of Munich Re Global Marine Partnership, began expanding its Terrorism and Political Violence Underwriting team two years ago. The underwriters draw on the most advanced tools and methods available to track developments with an extremely high level of detail and accuracy. A separate exposure aggregation team was formed, which uses dedicated software and specialised external intelligence services to access up-to-the-hour security knowledge on a global scale. The databases, also used by governments, provide details on all types of incidents and threats that fall into the category of political violence, ranging from small-scale isolated incidents that do not appear in the media to riots, unrest and full-blown war. These resources, which Munich Re Syndicate uses to develop tailored solutions, also enhance the terrorism risk intelligence in our reinsurance underwriting.