How an insurer to price the risk of terrorism

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The specialist of the insurance company Hiscox has grown from a small office to a global brand by focusing on specialized areas such as cyber attack, terrorism and abduction.

It also covers the houses and the property of the rich and famous.

But given the unpredictable nature of the terrorist threat and the number of different forms an attack can have, it is difficult to price the cost of insurance against it, said the chief executive Bronek Masojada.

“Yes, it is a bit arbitrary, but people want to of the cover. It is not the kind of thing such as car accidents where there are a lot of them and you can work on,” he told 5Live’s Wake up To Money.

“We don’t want a lot of terrorist events.”

Terrorism can affect companies in different ways. For example, the attack of the Manchester Arena last May that left 22 dead also damaged buildings and infrastructure.


After 2017, the London Bridge, attack in which eight people were killed, the area in and around the Borough Market was cordoned off and businesses couldn’t trade for 11 days.

“We price by analogy”, said Mr Masojada. “So, if you can take to ensure a building is 100 for all the risks, it does not seem unreasonable to say, OK, then, for the terrorism, which is a danger, we could charge from 25 to 100 for the property.”

“We also want to make sure that we would not have to ensure that the 10 houses or 10 other hotels right next to each other. So, if the worst happens, you only have one, you have to provide it, not all 10.”The kidnapping of the insurance

Hiscox also provides two-thirds of the world’s kidnap and ransom insurance.

“K&R, as we call it, is the thing that attracts your attention, but will be included in this product are things such as the evacuation of hot spots if there is a coup.”

Mr. Masojada said Hiscox has drawn clients from places including Egypt and Libya in the past few years, but that is not from the who and not to talk about the kidnaps, except to say that their number is significantly reduced compared to the past”.

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But he said while the kidnapping and ransom side of things, this is the high-profile, he is “only a small element of this product”.

“In fact, we, as a responsibility of the employer, when we ask people to travel on our behalf, to be able to protect and take care of their needs if bad things happen.”

It tells the story of a man who made a lecture tour abroad and then disappeared.

“We have been able to trace this person had been a keen kayaker and had gone kayaking alone in a river.

“They don’t have to find a person, but they found the remains of a kayak downstream. So, at least, you can answer a question.”Cyber-attacks

Another expert in the field, which Hiscox has been in development is to cover against cyber-attacks. The company has recently hired GCHQ former director of intelligence, Robert Hannigan, to help assess the cyber threat to businesses.

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Mr. Masojada believes that small businesses are just as much at risk as larger companies.

“One of my colleagues hired someone to do the maintenance of his house. They do not have a height up to Monday morning, so it rang, they had had a cyber-attack.

“They had lost all their records of all of their appointments. And they did not know that they had to go see it because it was hacked. It was a small property maintenance company.”

These types of events that can be costly to insure because of their unpredictability, but the products are vital, ” he said.

“At the moment cyber is really, really hard. It is changing more rapidly than something like the kidnapping of the because the technology is evolving so fast.

“And when we do not know how you put in a margin of safety. We can look back in time and think that was too high a price, but for today it is the uncertainty that account.”

“If we said, you can’t have a computer, because no insurer will sell you cyber-insurance , that is not good for society.

“Our job is to take the risk of these firms on our own balance sheet, but in a way that is not angry our own business.”