Mumbai Attacks Expected To Impact Terrorism Insurance

The terrorist attacks in Mumbai, India, may raise rates for terrorism risk coverage, but should not impact the overall insurance market, one expert suggested.

“In terms of losses, the attacks in Mumbai are not a market-turning event for the insurance industry generally,” said Alex Clayton, executive director at Willis Global Markets International in London.

“However, the losses may significantly impact the terrorism insurance market,” he added. “It now seems that the hotels are insured against the peril of terrorism through the Indian terrorism pool, which in turn is reinsured in London.”

“The potential reinsurance losses to the London market will certainly lead terrorism underwriters to have another look at their terrorism rates for India--which have, up until now, been very competitive,” Mr. Clayton said, responding to questions in an e-mail.

“The terrorism losses come at a time when most of the markets are renewing their reinsurance programs--including their terrorism reinsurance programs,” he noted.

“If the markets are faced with increased reinsurance costs along with potential losses from the Mumbai attacks, the result may be a hardening of the terrorism insurance market,” he added. “However, at the moment it is very much ‘wait and see.’”

Specific to India, he said the events will force underwriters to look at their rates for terrorism insurance there--especially because rates have been mired in a soft cycle for the past few years.

Another element the attacks in Mumbai underscored, he mentioned, is the need for combined insurance products covering physical damage, business interruption, kidnap and ransom, and accident and health exposures subsequent to an act of terrorism. Currently all coverage, though available, must be purchased separately, he noted.

While it is currently unclear who insures the Mumbai exposures--especially the two luxury hotels that were damaged--there is expected to be “significant business interruption losses” as they remain closed “for the foreseeable future,” according to Mr. Clayton.

In addition to the direct loss from the attack, he believes there will also be contingent losses.

For example, he noted cancellation of the one-day cricket series and other tours, “notwithstanding the intangible losses to the economy of a reduction of tourism, etc.”

Another industry source--who requested his name not be used because information remains sketchy at this point--said it does appear most of the losses will be assumed by India’s insurance pool, which is reinsured through Lloyd’s, but the property losses are not anticipated to be large.

Currently, the markets remain unaffected by the event, and renewal placements are still being made with no apparent contraction in the marketplace, the source noted.

According to one estimate reported yesterday, insured losses from the terror attack are expected to run between $300 million-to-$600 million. More than 170 people were killed in the four-day attack and close to an additional 300 were injured.