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- Report n°3: Financial protection of critical infrastructure
Report n°3: Financial protection of critical infrastructure
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Table of contents
- Uncertainty and insurability of catastrophic risk : Why is terrorism different?
- Potential for catastrophic loss
- Uncertainty and insurability of catastrophic risk : Why is terrorism different?
Potential for catastrophic loss
As mentioned above, the 9/11 attacks revealed a new form of terrorism, much more devastating than anything we had known before. Because of the high concentration of property and activities in the World Trade Center, the amount of reimbursement was particularly high for insurers and reinsurers. For instance, Lloyd's paid out 2.9 billion in compensation and came within a hair's-breadth of bankruptcy. Munich Re and Swiss Re, the two global leaders in reinsurance, paid out 2.4 billion dollars each. Among the major insurance companies, Allianz, AIG and Axa paid out 1.3 billion dollars, 820 million and 550 million dollars respectively. (Hartwig, 2002).
A recent study, solely concerned with worker's compensation, for which terrorism cannot be excluded from policies, analyzed several scenarios that some experts thought were plausible. The explosion of a bomb in the Rockefeller Center in New York at peak hour would generate insurance reimbursement estimated at more than 7 billion dollars (Towers Perrin, 2004).
The anthrax crisis in the fall of 2001 evidenced our vulnerability in the face of attacks resorting to chemical, biological, radiological and nuclear (CBRN) weapons of mass destruction. According to the same study, a large scale anthrax attack in the city of New York would be particularly devastating since it would have the potential to generate direct insurance reimbursement costs (compensation to workers) totaling more than 90 billion dollars (Towers Perrin, 2004). In both these cases, these amounts only refer to direct impacts on workers falling victim to the attacks.
Several other scenarios show that economic losses consequent to business interruption could have even more onerous financial effects, many of which would not be covered by insurance. For instance, a large-scale attack on one of the major international ports (Rotterdam) could lead to it being closed down temporarily. It would not be easy to calculate on an international scale the consequential economic losses for companies globally (and their clients) transporting goods by ship, with most of them operating on a just-in-time system. The possibility of using maritime containers as weapons of destruction within a global maritime network operating non-stop would lead to even greater economic losses (Flynn, 2004). The skyjacking of September 11, 2001, the anthrax attacks or the bomb attacks against passenger trains on March 11, 2004 in Spain, have shown that terrorist groups are particularly skilled at diverting networks for their own use away from their traditional purpose in order to inflict very large-scale human and economic loss (Michel-Kerjan, 2003).