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Attacks on western cities prompt insurers to innovate new policies

Insurers now judge whether a business has lost attraction as a result of an attack

Reuters  |  London/New York 


The changing nature of in Western cities has led insurers to offer new policies, from straightforward for business lost due to police cordons to more risky compensation for declines in tourism.

policies were developed after the 9/11 on the United States, but until recently covered only businesses that had been physically damaged.

The deaths of two hostages taken at a cafe in Sydney in December 2014 and in Paris in November 2015 that killed 130 people were catalysts for new types of taking into account the impact of the heavy loss of life on businesses not directly hit.

Recent deadly in and Manchester underlined the need for to innovate policies for businesses.

"The focus of has shifted to loss of life, rather than money, which can cause devastating loss of revenues to industries like hospitality," said Chris Folkman, director of product management at risk modelling firm RMS.

Some of these newer policies are difficult to price and hard to model, but insurers are developing them to meet demand and maintain market share in a highly competitive market which has suffered several years of falling premiums.

against is typically offered as a standalone policy or add-on to property and is underwritten by specialists such as Lloyd's of insurers Beazley, Hiscox and Talbot and U.S. insurers like AIG.

Additions to the standard policies have begun to include "denial of access" policies to compensate for loss of business as a result of a police cordon following an attack, as well as "loss of attraction" policies to loss of revenue due to potential customers staying away from businesses further from the attack.

A new-style policy including physical damage and business interruption for a hotel in central Manhattan which may have suffered from or merely been close to an attack, for example, would cost around $500 for $100,000 of cover, said Steven Tebbutt, political violence underwriter at Talbot.


Insurers say the global market for can now cope with potential claims totalling more than $3 billion as the industry responds to growing demand.

For instance, Chubb said this week it had increased the risk by 300 per cent that it is willing to take on for each client account through and political violence in the last two years, citing "growing client demand for certainty and comprehensive cover".

AIG has expanded its global capacity to on property to $1 billion, in part by employing engineering experts to help clients make their buildings less of a target, said George Stratts, AIG's President of Property and Special Risk.

David Abrahamovitch, chief executive of a chain of coffee shops including Grind, which is near the scene of this month's Bridge attacks, has begun the process of claiming from his insurer.

Grind was closed for a few days as it was inside a police cordon. The chain switched companies last year which gave it suitable cover, Abrahamovitch said, adding: "It will take a little while for footfall to recover."

In order for such to be triggered, a government needs to declare an event an act of

But in the United States, a strict legal definition of for purposes does not apply to many acts, or threats, of violence, said Bruce Smiley-Kaliff, senior underwriter for specialised programs at Kaliff and Lloyd's North American underwriter, which focuses on events coverage.

For example, the 2013 Boston Marathon bombing did not meet criteria for the U.S. Treasury to determine it an act of under the Risk Act.

"The statute was a congressional kneejerk to 9/11," Smiley-Kaliff said. "It never entered anyone's minds that we'd have to worry about the county fair."

Kaliff Insurance, based in San Antonio, Texas, is now developing coverage that would more broadly "violent acts" such as bombs, shootings, or multiple stabbings, at events such as concerts and outdoor festivals.

Opportunites. Risks

broker Arthur J Gallagher said it had seen growing interest in its crisis resilience policy, underwritten by AIG, which costs small businesses around 500 pounds and includes post-incident trauma counselling and 24/7 access to experienced response consultants".

While insurers develop some policies with an eye to new business, other claims for compensation may be forced upon them.

In Britain, a rule change earlier this year means people injured by a vehicle, like those targeted in the Westminster and Bridge attacks, can now seek compensation from insurers or the industry-backed Motor Insurers' Bureau. Previously, the vehicle's insurer would probably not have been liable.

The policy riskiest for insurers, though of growing interest to customers, is the loss of attraction, provided to a business nowhere near an attack which loses revenue as a result.

Paul Bassett, managing director of crisis management at AJ Gallagher, said its "denial of access" policy has a 2.5-mile radius, while "loss of attraction" has a 10-mile radius. Those distances vary among insurers.

Jessica Johnson, Underwriting Manager, Malicious acts at Lloyd's insurer Barbican, said a loss of attraction policy could provide cover, for example, to a hotel group with hotels in four UK cities. A physical attack on a hotel in one city could also allow the group to claim for loss of revenue in the other three.

Insurers use forensic accountants to judge whether a business has lost attraction as a result of an attack which did not affect it directly.

This type of policy could have helped hotels in Paris, for example, where revenue per available hotel room (RevPAR) plunged 14.6 per cent in 2016 compared to 2015, according to research firm MKG Consulting.

"It's an emerging, volatile type of coverage," said Gordon Woo, catastrophist at RMS, adding: "We're thinking of modelling it. Our clients are interested in this."

But insurers are cautious about offering too much of this and other such covers to avoid breaching the levels of risk that they have calculated are safe to have on their books.

"Loss of attraction is something we're looking's been asked about a lot by clients - especially in the entertainment area," said Christof Bentele, global head of crisis management, at Allianz Global Corporate & Specialty.

"As an underwriter, you have to make sure that you're not oversubscribing yourself."