Insurers Taking Steps To Better Manage

Group Life Terrorism Risk

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A chilling new report details the potential magnitude of a major terrorist event on lives lost and the ripple effect those casualties would have on U.S. life insurers.

The report, prepared by Risk Management Solutions, Newark, Calif., illustrates the vulnerability of both the United States and insurers to a terrorist attack using “several extreme but plausible scenarios” to detail the risk associated with terrorism. Terrorism is one of several risk management topics addressed by the report entitled “Catastrophe, Injury And Insurance.”

Among the scenarios used in the RMS report are a synchronized attack deploying 2-ton truck bombs at 3 locations, a medium-sized anthrax attack and a major anthrax attack. In all 3 events it was assumed that the attack took place during peak work hours in downtown Chicago.

The report emphasizes the fact that potential clusters of people would be affected by a terrorist attack. It cites U.S. Census Bureau statistics that cities continue to grow: The U.S. metropolitan population has tripled since 1950 and now half the nation lives in cities with over a million people. Additionally, the report says, urban workers have increased by more than 50% over the past 25 years.

The number of people in a single location is also increasing, the report says, explaining that more than 3 times as many people work in high-rise structures over 12 stories compared to 20 years ago. The RMS report also cites information from Skyscrapers.com that says some 140 new skyscrapers are currently under construction in New York and Chicago.

This is how the devastation of a bombing in a major urban area is described in the report: 95% of people standing within 100 feet and a third of everyone within 200 feet would be killed; people could be killed up to .8 miles away; and, for survivors, pressure impulse waves could cause serious damage to ears and lungs.

However, RMS does note that bombs of a ton or more are rare because large amounts of explosives must be amassed.

The shift in demographics cited in the report coincides with another shift, the growth of group life insurance in force.

That growth is detailed by the American Council of Life Insurers, Washington. Group life insurance in force, measured by face amount, grew to $6.9 trillion in 2002 from $4.2 trillion in 1992. The purchase of group life insurance was $1 trillion in 2002, up from $440 billion in 1992, according to ACLI.

The number of certificates the industry added from purchases of group life grew to 24 million in 2002 up from 14.9 million in 1992, the ACLI determined. Additionally, the number of group certificates in force grew to 163.8 million in 2002 compared with 141.7 million in 1992, an increase of 1.5% annually, ACLI says.

The good news, according to RMS, is that it is possible to manage risk proactively.

Scott Machut, vice president-life, accident and specialty reinsurance with ING Res Minneapolis operation, explains that prior to Sept. 11, there was very little tracking about where exposure existed.

ING Re was one of the 8 clients who sponsored the report. Others are Ace Tempest Re, Swiss Re, Endurance, Guy Carpenter, Holborn Corporation, John P. Woods and Willis.

Everyone used census data but did not analyze it, Machut says. But what has started to happen in the post 9-11 era, he continues, is that companies are analyzing specific risk and the potential impact that risk may have on financial assets.

Examining that risk, he says, includes looking at factors such as the size of the company and concentration of risk.

Managing concentration of risk is important, according to Machut, and that management includes getting a head count per location and determining how much group life insurance has been purchased in each location.

Analysis goes beyond simply looking at a ZIP code or a billing address, Machut says, noting that it is possible to parse data right down to a street address.

Companies are starting to understand the need for better risk management and the need to analyze their business, Machut says. “They are absolutely beginning to manage their risk better. They still have a ways to go, but they have come a long, long way since 9-11.”

As a reinsurer, ING works with direct writers and helps them understand where risk resides in the U.S. and how their business compares with that risk, he says. For instance, Machut says one client was shown a map which illustrated how their business was exceeding their risk tolerance.


Reproduced from National Underwriter Edition, July 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.