Published on February 4, 2008
Countering the Threat of TerrorismA Product to Manage Risk At Home and Abroad: Countering the Threat of Terrorism A Product to Manage Risk At Home and Abroad AIG Property Terrorism Facility 2003 Information on the Risk and the AIG Companies’ product Slide2: Recent Terrorist Attacks Worldwide Slide3: Saturday, August 7, 1998 “A bomb explodes in Nairobi, Kenya -its target is the American Embassy in Kenya resulting in more than . . . $500 million dollars worth of damages including those sustained by twelve nearby complexes.” (291 deaths and over 5,000 wounded) © BBC Monday, September 13, 1999 “A powerful explosion ripped through an apartment building in southern Moscow early Monday, killing at least 23 people and leaving dozens unaccounted for. The Ministry of Emergency Management said at least 23 people were killed in Monday's explosion. The event leveled the building, which housed about 150 people.” © CNN Slide4: The US Grapples with Terrorism Sept. 11, 2001 — considered the worst attack in history, hijackers crashed two planes into the WTC eventually causing its collapse and the loss of nearly 2,800 lives. In a related incident, the Pentagon was attacked causing death and injury to several hundred civil servants. Total costs for the two attacks are estimated at more than $40 billion. April 19, 2001 - a memorial was held to mark the sixth anniversary of the Oklahoma bombing which killed 168 people and commenced the era of a new threat “ intra-terrorism”. It also caused several million dollars in property damage. Slide5: Attacks on World Trade Center and Pentagon , 2001 U.S. 3,014 $40,000+ Bombing in London’s Financial District, 1993 U.K. 1 $907 Bombing in Manchester shopping mall, 1996 U.K. 0 $744 World Trade Center Bombing, 1993 U.S. 6 $725 Bombing in London’s Financial District, 1992 U.K. 3 $671 Suicide Bombing at Colombo Int’l Airport, 2001 Sri Lanka 20 $398 Bombing in London’s South Key Docklands, 1996 U.K. 2 $259 Oklahoma City Bombing, 1995 U.S. 166 $145 Explosion in PanAm Boeing 747 over Lockerbie, 1998 U.K. 270 $138 Dynamiting of three hijacked planes in Zerga, 1970 Jordan 0 $127 source: “Economic Perspectives On Terrorism Insurance” published in May 2002 by the Joint Economic Committee of the U.S.. Congress (available via internet: www.house.gov/jec/terrorism/insur.pdf) Largest Insured Losses From Terrorism 1970 to 2001 EVENT COUNTRY FATALITIES INSURED LOSS (MILLIONS OF 2001 U.S. $) Terrorism Market Trend: Terrorism Market Trend WTC Attack September 11: many insurers and reinsurers sustained terrorist-caused losses that were once considered “inconceivable” and not priced for. WTC 9-11 Losses: Financial impact on Insurance Industry Some companies restructuring or withdrawing from market Strain on Capital & Surplus ==> Insolvencies ? More to come ? Reinsurance market began to place more stringent demands on the placement of terrorism coverage on property placements worldwide. Insurance Industry has taken a hard stand on terrorism and for many commercial property policies, terrorism coverage has been excluded. Slide7: The Business Cost of Terrorism Government and corporate interests face increasing risks worldwide American businesses are now seen as the largest target of terrorism, but no business is immune This fact translates into risk of business interruption losses, increased capital expenditures, and employee casualties Terrorism Insurance helps control the cost of this risk Slide8: How Do We Evaluate The Risks ? Threats - Are you exposed ? Terrorist Groups Some active only within a given country (e.g, FARC) Others active in many countries (e.g., Al Qaida) Are you in a “hot” country where there are terrorists ? Are you a Target of one or more terrorist groups? Vulnerability - How vulnerable are you? Security & Management control Strong security discourages direct attacks Management control reinforces strong security Location (your building & surroundings) -- just being near a Target puts you at risk Properties around NY World Trade Center Hilton Hotel at Colombo, Sri Lanka Bombing in Ealing, West London Threats: Threats Political organizations pose the greatest danger GLOBAL = Al Qaida created a gobal terrorist network to attack Western or anti-Islamic interests REGIONAL -- such as Jemaah Islamiyah in Southeast Asia Hizballah in Middle East COUNTRY SPECIFIC -- there are dozens, such as: Moro Islamic Liberation Front (Philippines) Hamas, Fatah and many other Islamic groups Basque Separatists (Spain) Revolutionary Armed Forces of Colombia (FARC) Aum Shinrikyo (Japan) People’s Revolutionary Militia (Ecuador) Non-political organizations can also pose a danger Animal rights activists Anti-abortion or “Right To Life” activists Slide10: Prospective Customer Groups Group 1) Target Risks - for example: “Trophy” buildings Government properties (e.g., U.N., Euro Parliament) Infrastructure risks, such as Electric Power Generation Electrical and Gas Distribution Water Utilities Transportation (airports, railroads, bridges, tunnels) Telecommunications Major hotels & shopping malls Exhibition Centers, Stadiums &Arenas Banking/Financial Services Chemical and Petrochemical Plants Oil Refineries, Natural Gas Plants, Tank Farms “Icon” risks (huge brand names) Prospective Customer Groups (continued): Prospective Customer Groups (continued) Group 2) Financial Institutions Mortgage portfolios of financial institutions where the loan covenant may not tolerate insurance ex-terrorism Group 3) Real Estate Managers / REIT’s Fiduciary liability may require manager to procure coverage if available. Group 4) Major National / Multinational Companies If Property program has a terrorism exclusion and client has some exposures (e.g., close to a target risk or in high-risk country) Slide12: AIG Companies Property Terrorism Facility - Summary Coverage: Direct physical loss or damage to property covered caused by an Act of Terrorism. Key Exclusions: Electronic or cyber attack War risks, SRCC, VMM nuclear, biological, chemical Extensions of Coverage available: Loss of Income (Business Interruption) 12 months indemnity period is standard; longer period can be considered. Direct BI only -- no Contingent BI , Utilities Service or Denial of Access. No ALOP cover for Course-of-Construction risks Scheduled Locations Only: Coverage only applies to locations on schedule with address and declared value. No “blanket” coverage Each location must have a specific value declared for each coverage (PD and BI) that is desired for that location. more . . . Slide13: Policy Period 12 months is standard, up to 18 months maximum Exception: up to 48 months for Course-of-Construction risks Capacity Up to $100 M per event and aggregate for policy term Maximum $100 M term aggregate for each client (for parent and subsidiaries/affiliates combined) Standard Deductibles PD = 2% of TIV per location, min. $50,000 BI / Loss of Income = 30 days waiting period deductible Premium: Priced according to risk; normal minimum = $50,000. AIG Companies Property Terrorism Facility - Summary (continued) Slide14: AIG Property Terrorism Application completed and signed by the client, providing the following: Premises Schedule showing PD values and BI values per location (need address including postal code) Description of Risks(s) and surroundings . Security Information -- Perimeter Security and management control Loss history -- including any terrorist incidents or threats Proposed Inception Date Requested Limit Requested Deductibles (if different from standard) Information Required for Quotation Slide15: Why the AIG Companies? Advantages Capacity -- Up to $100M term aggregate in limits for a given client Financial security of the AIG Companies No Classes/Risks are Excluded -- The AIG Companies are prepared to offer a quotation on any variety of risks Threat Assessment Available -- On-site assessment available through Clayton Consultants, Inc. or one of the other security specialists with which the AIG Companies work. Slide16: How prepared are you to absorb Terrorism losses ? Act now to protect your assets and income with the AIG Companies ! Why Now? Will capacity available today be available tomorrow ??? AIG CompaniesProperty Terrorism Insurance: AIG Companies Property Terrorism Insurance To obtain a quotation or additional information, please contact your broker or your local AIG office.