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Kuala Lumpur, 10 January 2002 – Many of the world’s leading reinsurance companies have given notice that they plan to quit providing coverage to direct insurance companies for losses from future terrorist attacks with effect from January 1, 2002.
This measure by the reinsurers to exclude terrorism cover from their reinsurance treaties with direct insurers means that the direct insurance companies will also have to exclude terrorism cover from the various insurance policies issued by them.
That being the case, the General Insurance Association of Malaysia (PIAM) announced that, with effect from January 1 2002, general insurers will be applying a terrorism exclusion clause to all general insurance policies.
This development is a direct result of the terrorist attack on September 11, an event that has severely impacted the capital base of the worldwide insurance industry in total.
One of the world’s leading actuarial consultancy firms Tillinghast-Towers Perrin estimates that the global insurance industry will pay out between US$30 billion (RM114 billion) and US$58 billion (RM220.4 billion) or more in claims arising from this terrorist attack. While these claims will be paid mainly by primary insurers operating in the United States, a major portion of the costs will ultimately be spread throughout the global insurance and reinsurance community.
While the impact of the attack will severely test the resilience of the global insurance industry, current indications are that the majority of insurance and reinsurance companies will be able to meet their obligations. Although this is the case, the prevailing consensus is that the global private insurance industry does not have the capacity to provide protection against another terrorist event of the September 11 magnitude.
The terrorist attack on the World Trade Centre’s twin towers brought an abrupt end to the easy availability of terrorism coverage without extra premiums or limits as the international reinsurance market almost immediately re-examined the provision of this cover on a global basis.
Preliminary enquiries with overseas insurance markets indicate that separate terrorism covers were available but the capacity was very limited. In addition, these covers would be subjected to very stringent terms and conditions. The cost of such terrorism cover will be based on exposure of the risk concerned and would be charged relatively much higher commercial rates. Risk owners wishing to purchase such terrorism cover can contact their insurers.
PIAM states that the insurance industry will be submitting its proposal to Bank Negara Malaysia on alternative mechanisms to provide some form of limited terrorism cover locally at more affordable rates.
In other countries, such as the US and Germany, proposals have already been made to the respective Governments to set up an insurance fund or pooling arrangement to help insure against terrorism risks. In the US, the argument put forward in support of the proposal for Government involvement is that the availability of such insurance cover is not an issue only for insurers but has broader economic implications as the US economy cannot possibly recover without the full availability of insurance.
In other markets such as Britain and Spain, which have previous experiences from terrorist attacks albeit on a smaller scale compared to September 11, similar insurance pooling systems are already in place. Britain’s Pool Re, for example, was set up in 1993 by the UK Government in conjunction with the insurance industry and provides insurance protection to risk owners for damage from terrorist attacks that exceed certain specified limits.
PIAM advises risk owners to contact their insurers directly to find out more about the exclusion of acts of terrorism from their various insurance policies.
