Terrorism insurance

With two existing insurgencies, the Philippines is very much exposed to terrorism risks. Between 2007 and 2017, no less than 200 attacks every year from Sunni-Salafi Jihadis have occurred in the southern Philippines, according to data from Risk Management Solutions (RMS).

Attacks from the recently declared terrorist organization, the New People’s Army (NPA), have averaged at 100 per year. Macro attacks, where there are at least 30 fatalities, have occurred at least once a year since 2009. In the Mindanao region, prominent terrorist attacks would include the 2000 Rizal Day bombing, the 2002 ferry bombing, the 2002 Zamboanga City bombing, the 2003 Davao Airport bombing, the 2013 Cotabato City bombing and the 2016 Davao City bombing. The 2017 Global Terrorism Index ranked the Philippines as the 12th country most impacted by terrorism.

The threat of terrorism not only puts lives at risk but also risks property damage and loss of business opportunities. The costliest terrorism attack is of course the attacks in New York and Washington, D.C. on September 2001, otherwise known as the 9/11 attacks. It caused 2,982 fatalities and $43.5 billion in insured losses. The second-costliest terrorist attack was the IRA bomb attack in London on April 1993. While there was only one fatality, the insured losses totaled $1.2 billion. The third costliest was also an IRA bomb attack in Manchester on June 1996. There were no casualties, but the insured loss was at $1.02 billion. In Asia, the costliest terrorist attack was the Tamil Tiger attack at Colombo airport on July 2001. There were 20 fatalities and the insured losses totaled $545 million.

A terrorism modeling was launched by Risk Management Solutions to study the risk of terrorism. RMS has developed terrorism solutions for the insurance industry with the support of Rand Corp., a government policy think tank, Jane’s Information Group, and the Rajaratnam School of International Studies.

In view of potentially large losses arising from a terrorist attack, insurers would not normally assume risks unless there is some form of government participation or unless as part of a terrorism pool. It is a difficult risk to insure. According to Weimeng Yeo, Director of Risk Management Solutions, “to allow the establishment of sustainable solutions for terrorism risk insurance, various governments have engaged in national schemes such as pools under which insurers manage terrorism risk up to certain limits beyond which government play the role of [re]insurer or guarantor of last resort.”

In Australia, for example, the government created the Australian Reinsurance Pool Corp., following the 9/11 attacks. ARPC is a public financial corporation established by the Terrorism Insurance Act 2003 to administer the terrorism reinsurance scheme, providing primary insurers with reinsurance for commercial property and associated business interruption losses arising from a declared terrorist incident. ARPC’s reinsurance scheme was established after discussions with key industry stakeholders, including insurance and reinsurance companies, banks, representatives of property owners, industry associations, insurance brokers and actuaries. Through the scheme, insurance companies can choose to reinsure the risk of claims for eligible terrorism losses by paying premiums to ARPC. Consequently, holders of eligible insurance contracts will be covered in the event of a declared terrorist incident.

In France, the insurance pool created was the Gestion de l’assurance et de la Réassurance des Risques Attentats et Actes de Terrorisme or Gareat. Under this scheme, Gareat acts as a reinsurer to make terrorism insurance more affordable for businesses. Insurers will be liable for the first €400 million of all claims combined, Gareat will pay out on claims between €400 million and €2.4 billion, with the French government taking up the rest via the Caisse Centrale de Reassurance fund. There are many other countries with existing terrorism pools, such as Belgium, Germany, India, Holland, South Africa, Spain and the United Kingdom. There are 37 such pools in the world today. In 2016 the International Forum of Terrorism Risk Re/Insurance Pools was launched.


Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail: dennisfuna@yahoo.com




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