Terrorism Coverage: lessons learned from the Boston Marathon bombing

1. Terrorism Coverage: lessons learned from the Boston Marathon bombing Tim Press & Sean Jackson

2. • Tim Press, Head of Special Risks, Miller Insurance Services LLP • Tel: 011 44 20 7031 2685 Email: tim.press@miller-insurance.com • Tim has worked in the insurance industry since 1988 and joined Miller in 1996. He is Head of the Special Risks team which covers product areas such as political risks, contract frustration, trade credit, terrorism, political violence and supply chain insurance. • • Sean Jackson, Director, IMA Global Risk, IMA Corp. • Tel: 913-982-3471 E-Mail: sean.jackson@imacorp.com • Sean joined IMA in 2013 and has provided risk solutions to some of the largest global companies. As Director of IMA’s Global Risk Division, Sean is responsible for IMA’s multinational clients who travel, trade or have operations overseas. He has 22 years of experience assisting companies in managing their exposures all over the world. His unique experience and expertise crosses all industry segments and coverage lines. • Christine Hoppe, Risk Manager, CORAM Health Care • Tel: 303-672-8746 Email: christine.hoppe@coramhc.com • Christine has been a risk professional for over twenty years. In that time, she has worked for insurance carriers, brokers, TPAs and as a risk manager. When not is the office you will find her on the running trail. Christine also competed in the 2011 Boston Marathon. She is currently employed at CORAM Health Care (recently acquired by CVS).

3. What to Expect • After attending this session you will have gained an understanding of: • How the Boston bombings add to the TRIA debate • TRIA/TRIPRA • Alternatives to TRIA - stand-alone terror market and political violence • How to expand coverage for international exposures

4. First – The Good News

5. Boston Marathon bombing - timeline Source: FBI/AP Source: Flicker by Aaron Tang licenced under CC BY 2.0 Source: Massachusetts State Police Air Wing

6. Boston bombing in numbers • Property and casualty insurers paid a total of USD1.9m in bomb-related claims • Nearly half of 133 business interruption claims rejected • 11 of 27 claims for commercial property damage rejected • 72 hour exclusion • Source: Division of Insurance

7. Did TRIA respond? • Some shops directly impacted by the bombings, such as the Forum restaurant on Bolyston Street, were still closed more than 45 days after the event • Stores on Bolyston Street that were undamaged by the blasts were closed for nine days as the FBI carried out their investigation into the bombings • Other businesses across Boston shut their doors as state authorities closed down the city’s transport system and issued a shelter-in-place order during the manhunt. • Tsarnaev brothers initially labelled terrorists by Obama and the media • However not classified as a “certified act of terrorism” • Leads to questions on process and timing of terrorism certification under TRIA.

8. Terrorism A dangerous world

9. Terrorism insurance pre 9/11/01 • Risks in various worldwide locations including: • Middle East/ Israel United Kingdom • Sri Lanka Spain • Colombia Kenya • South Africa Tanzania • Otherwise general “all risk” property cover included terrorism, excluded war • Some government programs/schemes: • Consorcio de Compensación de Seguros • Pool Re • SASRIA • Otherwise terrorism coverage written by the political risk market

10. Key US terror events pre 9/11 February 26, 1993 – New York Bomb explodes in garage of World Trade Center. Insured property losss– $822m fatalities 6 April 19, 1995 – Oklahoma City Truck bomb in front of government building Insured property loss: $192m fatalities 166 Oklahoma City National Memorial • Source: Swiss Re & Insurance Information Institute • Includes bodily injury and aviation hull losses. Updated to 2013 dollars by the Insurance Information Institute using the U.S. Bureau of Labor Statistics CPI Inflation Calculator • Differs from inflation-adjusted estimates made by other organisations due to the use of different deflators

11. TRIA – overview • Terrorism Risk Insurance Act (2002) passed fourteen months after 9/11 as a federal backstop for insurance claims related to certified terrorism events • Terrorism Risk Insurance Program created – a risk-sharing plan between federal government and the insurance industry • Created in response to commercial policyholders inability to secure terrorism coverage • $100bn of annual reinsurance protection • All commercial property and casualty policies to cover terrorism • Year 1 – 27% businesses bought terrorism insurance • By 2012 – 60% (higher in metropolitan areas) • Reauthorised twice – 2002 and 2005 • 2014 – third time it has come up for reauthorisation

12. Evolution of TRIA

13. Advantages/Disadvantages TRIA

14. Advantages/Disadvantages Stand-alone Terrorism Placement

15. Who is buying terrorism insurance? • Industry sectors buying TRIA or stand-alone: • Real estate (91%) • Public sector & Financial entities (72%) • Media companies & entertainment (82%) • Tech firms (55%) • 75% of top 20 US brands are buying stand-alone terrorism coverage • Fortune 100 • > 70% of companies are buying stand-alone terrorism • > 55% of companies are buying global political violence • Source: Interbrand& Miller research 2013

16. Stand-alone underwriting - considerations • TIV and actual locations • Management of underwriter aggregate • Limit required • Highest aggregate areas nationwide (source: QBE Insurance (Europe) Ltd) • New York • Times Square /RockerfellerCenter / Wall Street/ NYSE ) • Chicago, IL 60606/ 60611 • San Francisco, CA • Houston, Harris County • Dallas, TX 75201 • Seattle, WA 98188

17. How Terror risks are aggregated Source: QBE Insurance (Europe) Ltd

18. Denver ? Source: QBE Insurance (Europe) Ltd

19. Terror in the US… Source: QBE Insurance (Europe) Ltd

20. Why buy terrorism exclusively? • US corporations with revenues of over $1bn have become more international with 70% having overseas property exposures • Source: Miller research 2013 • Paid claims • Lebanon War 2006 • 2010 Thai political protests • Egyptian Revolution of 2011 • Arab Spring • Westgate Mall Nairobi, Kenya

21. The devil is in the definition

22. TRIA renewal debate • Policyholders are seeking and want alternatives • Billions of dollars in private insurance capacity available • Stand-alone offers coverage for companies with foreign exposures • AM Best research re: non renewal of TRIA – only 4% of 220+ insurers examined failed the stress test, due mainly to workers compensation • Could a large-scale attack prove too costly for the private market – in absence of TRIA? • Nuclear and cyber coverages

23. TRIA outlook, rumours & uncertainty • All percentages, thresholds and retentions subject to change • Possible inclusion of elements like cyber-terrorism coverage/NCBR • Certification process redrafted ? • Only workers comp cover, no property coverage • Will likely renew with different coverage triggers • Imminent or to the wire…. • Many Firms are now looking to the stand alone market for alternatives and for certainty of coverage post December 31, 2014.

24. US Terrorism coverage options • Continue with property all risk / TRIA offering • Secure with stand-alone terror option • Combination of property all risk / TRIA & stand alone coverage • TRIA captive wrap with options. • Capacity commitment if TRIA coverage is already in place

25. Conclusion • Terrorism is a persistent threat – over 200 attacks in the USA between 2001-2012 • Boston bombing aftermath shows that TRIA leaves some questions • Market has shown it is able to cope with large-scale losses, e.g. Hurricane Katrina • TRIA, what next and uncertainty • Look at other options to cover your U.S. and international exposures

26. Questions & Final Comments The future of TRIA?

27. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. Please complete the session survey on the RIMS14 mobile application.

28. Terrorism coverage: lessons learned from the Boston Marathon bombing Tim Press & Sean Jackson