When brokers at Aon sought insurance against terrorism for a trophy building in New York recently, they did so armed with a detailed report on the resilience of the building to a truck bomb. William Farmer, a director in Aon's crisis management division, says with this and comments on how the business would cope with an attack, plus a profile of the tenant: "We were able to go to the underwriters on a risk they were inherently pretty reluctant to get involved with, and were able to secure the capacity the client wanted."
In the market for terrorism insurance, underwriters are looking at measures companies have in place to prevent and cope with an attack. Mr Farmer says underwriters are concerned about controlling vehicles entering underground car parks, because a bomb detonated underneath a building is likely to cause great structural damage.
Mr Farmer says underwriters are in favour of barriers outside because the effect of a bomb is reduced significantly if it is 30 metres away. However, most buildings are flanked by roads so underwriters will look at controls on deliveries. Attention is also being paid to transport systems, following the July 7 attacks on London, and hotels, particularly in the Middle East after the bombing in Sharm al-Sheikh in Egypt in July.
Nicholas Davies, war and terrorism underwriter at Brit Insurance, a Lloyd's insurer, says it is becoming increasingly difficult for hotels in the Middle East to find cover. They are improving security and providing detailed information to underwriters. But underwriters also want to see companies have plans for an attack. Additional security measures and detailed contingency planning do not come cheap.
In the market for terrorism insurance, underwriters are looking at measures companies have in place to prevent and cope with an attack. Mr Farmer says underwriters are concerned about controlling vehicles entering underground car parks, because a bomb detonated underneath a building is likely to cause great structural damage.
Mr Farmer says underwriters are in favour of barriers outside because the effect of a bomb is reduced significantly if it is 30 metres away. However, most buildings are flanked by roads so underwriters will look at controls on deliveries. Attention is also being paid to transport systems, following the July 7 attacks on London, and hotels, particularly in the Middle East after the bombing in Sharm al-Sheikh in Egypt in July.
Nicholas Davies, war and terrorism underwriter at Brit Insurance, a Lloyd's insurer, says it is becoming increasingly difficult for hotels in the Middle East to find cover. They are improving security and providing detailed information to underwriters. But underwriters also want to see companies have plans for an attack. Additional security measures and detailed contingency planning do not come cheap.
So does the investment generate savings on insurance against a terrorist attack? According to Mr Davies: "It is very difficult to offset one dollar spent against one dollar saved, because a lot of it is intangible." But he says: "Ultimately, if you are seen as a client that is very risk averse, and very committed to a sustained risk management programme then that is regarded as a strength by insurers."
Theo Butt, who leads the terrorism placement team in London for Marsh, the insurance broker, says a company would benefit if it could demonstrate it had security cameras or high fences. Stephen Ashwell, lead underwriter of war and terrorism risks for Hiscox, the Lloyd's insurer, says the cost of advice from a specialist risk consultancy will often be deducted from the insurance premium. He adds he will soon be travelling to Egypt with a specialist from Control Risks, the consultancy, to assess security in 20 hotels Hiscox has been asked to insure. "We want to establish if they have good security and what the difference is between various hotels. It would be unreasonable to charge the same rate foreveryone," he says.
But brokers and underwriters point out that measures to prevent and cope with terrorism should be good business sense anyway. "The concept is not putting barriers (in place) so you get a cheaper insurance premium. It's protecting your people and better business." Similarly, contingency plans can minimise liability in the event of an incident, and protect a company's brand and reputation. In some cases, it might be the difference between surviving and going out of business. But companies must strike a balance between measures to prevent and cope with an incident and insurance cover. According to Chris Rigby-Smith, a partner at broker Jardine Lloyd Thompson: "I would advise a combination of business interruption insurance and continuity planning. One is a financial transfer mechanism. The other is a risk control mechanism."
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