The scope of terrorism risk has changed significantly in recent years by becoming more diverse and dispersed, bringing significant changes to businesses’ risk transfer needs. Gaps in traditional terrorism (re)insurance cover are being exposed as a result, with terror-related risks surfacing around impacts on people, loss of attraction, reputational damage and cyber, as well as property.
With IS now on the wane as a territory-holding entity, the future of the organisation, and individuals linked to it, is complex. Returning foreign fighters from Syria present a significant capacity for violence. Further attacks are likely to occur if even only a small number of these individuals avoid detection, infiltrate Western countries and conduct acts of terrorism. Combined with a resurgent AQ, the long-standing threat from nationalist separatist groups (including the IRA in the United Kingdom), a rise in right-wing extremism and the real and growing potential for destructive cyber attacks, this raises important questions about the future of global terrorism and how businesses and (re)insurers should respond. Other risks around wealth and resource disparity and ideological grievances also need to be closely monitored.
AN EVOLVING PERIL
The changing nature of the terrorist threat (and its impact on the (re)insurance sector) was a theme that JLT advanced two years ago1 when we argued that the global threat had moved into a new and more complicated phase, with Western nations confronting a multi-dimensional risk landscape that emanated from home-grown individuals, international groups and the online environment. Figure 1 on page 4 illustrated how the nature of the threat had changed since the 1990s, when the risk was characterised by groups (typically with domestic agendas) targeting high-value properties with large vehicle-borne improvised explosive devices (LVBIED) to achieve political ends. By 2016, attacks in the West were more likely to be carried out by lone wolves or small cells intent on causing mass civilian casualties rather than economic disruption.
AQ was pivotal in bringing about this change, and its strategy was subsequently further developed by IS. The declaration of IS’s caliphate in parts of Syria and Iraq provided freedom of movement and fertile ground for foreign fighters’ skills to be honed, ideologies to be further radicalised and weapons to be obtained. The exploitation of the internet and social media also provided extremists with a relatively safe platform to recruit, train, coordinate activity and spread their message.
This led to a surge in terrorist attacks globally, with 2014 representing the high point as the conflicts in Syria and Iraq escalated (see Figure 2). The number of attacks in the West peaked the following year, although activity here has been (and remains) a mere fraction of the global total. It is activity in conflict ravaged countries that has been largely responsible for the stark spike in the economic costs of global terrorism since 2011 (see Economic Impacts of Terrorism).
'NEW’ TERRORISM IN THE WEST
Serious ramifications have still been felt in the West, where attackers have been inspired to act under the IS banner using explosives, knives and vehicles as weapons of choice. This has seen businesses that would not traditionally have considered themselves likely victims of terrorism being caught up in the fallout, emphasising that attacks are no longer just the concern of large corporations in urban centres.
Figure 3 shows the extent of IS’s terrorism campaign in Europe between 2013 and 2017. Most successful attack linked to IS during this time were self funded and did not require any external support. This provided the group with a highly effective formula that required little planning and resources, made it difficult for the intelligence services to intercept and generated significant publicity for its cause. A rise in right-wing extremism across a number of Western countries has been a common reaction to these developments.
IS’s so-called ‘virtual caliphate’ has been a real force in facilitating recent attacks. Extremist content online has helped radicalise and train individuals to carry out low-sophistication attacks in their home countries whilst encryption software has been exploited by IS operatives in Syria and Iraq to assist perpetrators. The online threat from IS, and its ability to inspire attacks against the West, is likely to persist long after the remnants of the group’s physical caliphate have been swept from Syria and Iraq.
Table 1 (below) lists some of the more significant terrorist attacks that occurred in the West in 2016 and 2017. The vast majority conformed to the template of targeting public places with the aim of causing indiscriminate and mass civilian casualties. A few attacks, however, stood out for their use (or intended use) of explosives as perpetrators’capabilities were enhanced by guidance and coordination from foreign-based militants. Although it failed to detonate fully, the attempted Parsons Green bomb attack in London was significant for its credible attempt at an explosive device.
The Manchester Arena bombing in the UK also marked a notable diversification of tactics as an improvised explosive device (IED) filled with nails, ball bearings and other metallic items was detonated. It killed more people than any other in the United Kingdom since the 2005 suicide attacks that targeted London’s transport network. Those 2005 attacks were linked at the time with AQ militants in Pakistan and the perpetrator of the Manchester bombing is likewise believed to have received foreign assistance after being directed or enabled by IS operatives in Libya.
Additionally, reports indicate that the plotters behind the Barcelona van attack in August initially planned to detonate explosives at several city landmarks. They were thwarted only when materials exploded prematurely in a house in Alcanar. Surviving members of the cell then scrambled to mount alternative plans by targeting pedestrians in Barcelona and the town of Cambrils, killing 16 people in the worst terrorist atrocity in Spain since the 2004 Madrid train bombings. Had the plan to use explosives been successful, the impact could have been even more severe.
Terrorism therefore continues to present a serious and persistent threat to Western assets and people around the world. And recent global developments could see this threat become more complex in 2018 and beyond. Firstly, although IS today is a shadow of its former self in Syria and Iraq, the group is likely to morph into an insurgent fighting force there and carry out a sustained terrorist campaign in both countries (see callout on page 10). Consequences are also likely to be felt further afield: up to 40,000 foreign fighters from 120 countries have left the region, raising concerns that these motivated and battle-hardened individuals could mount terrorist strikes in populated urban centres in other regions. Western Europe is likely to remain a key area of operation for IS operatives and supporters as the estimated 7,000 European jihadists who fought for the group in the Middle East could resurface in the region (3).
Additionally, whilst IS has been the focus of counter-terrorism and media attentions, AQ has been quietly rebuilding its network and military strength. AQ today is as dangerous as IS, boasting tens of thousands of fighters, and its resurgence should be regarded as a significant development. The group has a strong presence in Syria and has re-established a foothold in the Pakistani Federally Administered Tribal Areas and Afghanistan. In fact, large training camps were discovered in Afghanistan recently, some bigger than those that existed pre-9/11. AQ has also successfully preserved its presence in other countries through its affiliates. Al-Qaeda in the Arabian Peninsula has been particularly effective in consolidating and expanding the territory it controls in Yemen. Along with significant advancements in Africa and East Asia, all this points to a movement that has made alarming strategic gains in recent years.
Whilst thinking in the West has often reflected a binary view of risk that encourages the characterisation of attacks (whether it be ‘low capability’ or ‘sophisticated’) and the categorisation of Islamic extremists into distinct groups, this oversimplifies the threat landscape. Worryingly, complacency has set in as a result, with some businesses, particularly those located outside central business districts, often viewing attacks as isolated incidents rather than part of a wider trend. IS and AQ specifically do not work towards an ‘either/or’ strategy where they pursue one form of attack over another. And the ascendency of one group does not signify the downfall of the other. Whilst IS and AQ have two different operational models, there may be interplay between fighters, especially at field rank and below. Similarly, the affiliations of regional groups may be more fluid, rather than strictly defined. So whilst much of recent attention has been on more localised attacks, this does not mean that the risk of large-scale, coordinated attacks has receded or disappeared.
In fact, both IS and AQ continue to adhere to AQ’s Strategy to the Year 2020, which set out a five-point plan. The goal remains to provoke the United States and the West into invading Muslim countries, encourage local resistance, expand the conflict to neighbouring countries, franchise the ideology to other parts of the world and finally, as a result, overstretch and collapse the US and Western economies, thereby allowing a caliphate to fill the void. Arguably, there has been credible success in achieving the first four.
Today’s multifaceted terrorist threat poses difficult and complex challenges to the business community and (re)insurance sector alike (see Figure 5 for an illustration of today’s threat landscape). Cafés, bars, clubs and small music venues have been impacted by localised attacks in recent years. But, at the same time, terrorist groups continue to harbour ambitions of launching major terrorist attacks around the world. So whilst the focus of recent attacks has been on people (with businesses of all sizes, including SMEs, also often suffering both direct and indirect economic consequences), substantial damage to property remains a real danger.
Long-standing (re)insurance coverage delineations may therefore not be sustainable for the long term – businesses want and need broader cover. Definitions that have traditionally served the market now risk becoming a distraction as the lines between terrorism and malicious acts and workplace violence become increasingly blurred. There have also been a number of un-attributable but probable state acts, relating to cyber, strikes, riots and civil commotions (SRCC) and physical attacks. These also challenge the utility of defined perils.
The (re)insurance market needs to respond decisively to the fast-changing nature of terrorism. Although significant progress has been made in the last couple of years, there is still more to do in order to deliver a sustainable proposition that offers comprehensive protection to businesses.
1. JLT Re Viewpoint report: Rising to the new terror challenge, March 2016.
Download the full Viewpoint report - Terrorism (re)insurance: achieving resilience
Table 1: Selection of IS-Linked Terrorist Attacks in the West - 2016 to 2017