The dramatic rise in political instability and civil unrest across the globe, including uprisings in the Middle East and protests in Greece and Spain, has triggered a significant shift in the nature of terrorism risk and has highlighted the need for tailored terrorism and political violence protection, according to “Tensions Building: the Changing Nature of Terrorism Risk and Coverage,” by Guy Carpenter.
The report, released in December, 2012, showcases the increasingly diverse and dispersed nature of global terror threats, shifting to softer targets with attacks and plots becoming more localized. Although there has been a general decline in the number of terrorist attacks over the last five years, which peaked at more than 14,400 in 2006, the instances of these events remain at historically high levels.
The Terrorism (Re)Insurance Market Today
On a per risk basis, Guy Carpenter estimates that approximately USD2.5 billion of capacity for terrorism and sabotage coverage is currently available in the facultative reinsurance market. Although there is an abundance of capacity in the market, due to the absence of a recent major terrorism loss, heightened global volatility has caused a spike in the frequency of localized or territory-specific losses. Nevertheless, the increase of loss frequency in the facultative market has not yet affected the general market. Instead, the report indicates that changes to capacity and pricing can be expected primarily at the local level.