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Publication ZEP-RE March 2014


Every year around the world, it’s estimated that individuals and organizations suffer more than 10,000 terrorist attacks, with nearly 75 percent of those resulting in death, injury and/or kidnapping.

Terrorism is the systematic use of violence/terror as a means of coercion for political purposes.

The word "terrorism" is politically loaded and emotionally charged, and this has made it difficult to have a precise definition. Common definitions of terrorism refer only to those violent acts that are intended to create fear (terror); are perpetrated for a religious, political, or ideological goal; and deliberately target or disregard the safety of civilians.

At times, the term is used by state authorities to criminalize political or other opponents, and legitimize the state's own use of armed force against opponents. Such use of force may be described as "terror" by opponents of the state.

Terrorism has been practiced by a broad array of political organizations to further their objectives. It has been practiced by right-wing and left-wing political parties, nationalistic groups, religious groups, revolutionaries, and ruling governments. In some cases, the same group may be described as "freedom fighters" by its supporters and considered to be terrorists by its opponents.

An enduring characteristic of terrorism is the indiscriminate use of violence against civilians/ noncombatants for the purpose of gaining publicity for a group, cause, or individual. The hallmark of terrorism is the exploitation of human fear towards the achievement of these goals.

Terrorism can be described as activities with the following three characteristics:

  • Involve violent acts or acts dangerous to human life within the jurisdiction of a country or state.
  • Involve violent acts or acts dangerous to human life that violate laws of the state.
  • Appear to be intended:-
  1. To intimidate or coerce a civilian population;
  2. To influence the policy of a government by intimidation or coercion; or
  3. To affect the conduct of a government by mass destruction, assassination, or kidnapping.

There has been a significant increase in terrorist activity globally in the past 10 years, with the Westgate (Nairobi, Kenya) attack of September 13th shocking the whole World.

Terrorism insurance is insurance is the Insurance purchased by property owners to cover them against losses and liabilities that might be occasioned by activities of terrorist.

The Insurers nevertheless consider it as a difficult product, as the nature or trends of terrorist attacks are very difficult to predict and the potential liability enormous. This came out clearly from the September 11, 2001 attacks in the US, which resulted in an estimated loss of US$32 billion. The method of attack had not been used anywhere before by terrorists.

This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in casualty and property insurance.

The method of providing cover against terrorism in the Western World has changed significantly over the past 20 years and more so after the September 11 attacks. Most Western countries now hold firmly the view that some form of Government backed Insurance arrangement is the best method. This is also true for the developing world, Kenya and the whole of Africa included.

Kenya, Uganda and Tanzania have suffered terrorism attacks and the threats and experience of attacks all the time.

Involvement of Governments in the Insurance of Terrorism is not just because of the size of terrorist events, but also their sheer unpredictability.

In the past, most companies in the World used to give terrorism protection without charging additional premiums or any serious underwriting considerations or within a state backed compensation mechanism. In fact before September 11 attack, only one scheme Pool Re of the UK isolated terrorism as a distinct peril. The majority of the companies covered terrorism within the framework of all losses arising from “extraordinary events”. These included natural perils, such as earthquakes, floods, riots and civil commotions etc.

The September 11 incident changed the way the Insurance Industry of the World view terrorism risks. This has also led to a massive change in the way the insurers manage their capital and exposures and has brought into the fore the matter of Governments being involved in Terrorism Insurances.

The question has been why should this risk be treated differently from other catastrophic perils?

Firstly, most natural catastrophes occur where such activity can be expected. So for a risk is located within the vicinity of say Rift Valley, the exposure to the earthquake is significantly higher. Equally, the risk of flooding is higher for properties situated in the coastal regions.

Secondly, for natural catastrophes, there are scientific data and past event history available to help model the future. Predictive tools are not perfect, but they do exist and provide some useful information and Underwriters writing a risk exposed to certain types of Natural Catastrophes can attempt to model potential losses. In doing this, they will consider where an event might occur, how often such an event will happen and the likely severity. Finally, they can also asses how many of the risks written may be exposed to a given event and so the potential of total loss on the account can be predicted. Objectively based premium calculation can then be carried out.

The loss models are not precise a, but they provide arrange of loss scenarios that among other things, inform the level of reinsurance that may be needed, the capital required to support the business and the premium base needed.

The claims arising out of the September estimated at US$. 32 billion, (MD & LOP) proved globally that terrorism can present the Insurance Industry with losses that were never envisaged and of a magnitude well in excess of anything it had previously anticipated. The losses illustrated the fact that terrorism is fundamentally different and cannot be predicted in the same way as other perils such as flood, storm or even earthquakes.

Pursuant to these this attack, the Insurance Industry withdrew capacity for terrorism, and they were only prepared to offer solutions alongside some form of Government engagement.

There is no scientific data or past experience to base any future predictions. Moreover, terrorisms are human beings and are able to adapt and change in ways a natural catastrophe cannot, thus rendering any historical perspective of limited value. They might switch location, method and specific target, in addition to attacking more than one target simultaneously or over a short time frame. What this means is that terrorism losses are highly uncertain and of a nature and magnitude that cannot be predicted to any degree of accuracy.

Without terrorism cover, the assets valued at millions will be exposed and the whole Economy will be vulnerable.

It is therefore imperative that the concept of terrorism insurance for property be under pinned by some form of Government backing. Although the shape and the extent might be different around the World, this form of public-private partnership will remain the norm for the foreseeable future.

Example of Governments that providing compensation for terrorism are The UK, USA, Israel, Northern Ireland and South Africa (SASRIA). These schemes provide compensation for a broad range of violent acts, of which terrorism is just one.


  1. The UK Model:
    Cover is available to the full extent of Sums Insured for losses that result from damage to property and includes chemical, biological, radiological and nuclear. Business interruption cover is offered subject to payment of additional premiums. Surplus is used to build up reserves through purchase of Catastrophe Bonds. Once the reserves are exhausted upon payment of claims, the Government would make funds available to pay further clams.
  2. The French Model:
    The State is the Reinsurer of last resort: The Reinsurers (Pool Members) provide first layer of cover and these acts as the Industry’s retention. A layer of up to US $ 2.3 Billion. Above this, the French state provides unlimited layer.
  3. The US Model:
    The Government sits above the individual Insurer’s retention. Each insurer has a deductible of 20% of their earned premiums. Once that is breached, they can recover 85% of their losses from Government, assuming the event is certified. Aggregate limit of all losses is US$. 100bn.

With the rise in terrorist activities in the Region, and the expected rise in the cost of claims and premiums , The Governments in the region should be challenged to bear some part of the losses emanating from damages caused by terrorists. This is because the duty of protection of its citizens and their properties from terrorist is bestowed fully on the Government.

Kenneth Oballa,

Training Manager.

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