Presentation on theme: "Terrorism and the Aviation Industry November 2006."— Presentation transcript:
Terrorism and the Aviation Industry November 2006
2 Contents What is terrorism? What is the cost of terrorism? Is terrorism insurable? What is the response of the insurance industry? What is the response of the aviation industry? What happens next?
3 What is terrorism? US Army found over 100 definitions of terrorism Common themes –Inherently controversial –Political judgement –Social bias –Western-centric “Terrorism is the use or threatened use of force designed to bring about political change”
4 What is terrorism? Terrorist or freedom fighter?
5 What is terrorism? MI5 tracking 30 Terror plots in UK 1,600 individuals under surveillance MI5 increased by 50% since 9/11 – 2,800 Staff (Source: BBC 10/11/06)
6 What is terrorism? 77 Bombings, 51 of which caused deaths
7 What is terrorism? 23 June 1985 Air India182 329 fatalities (inc 22 crew) Bomb detonated in cargo hold at 31,000ft (9,500m) $95m hull loss $29m liability loss Deadliest attack pre 9/11 Right front door of Air India 182 recovered from the ocean floor
8 What is terrorism? Pan Am hi-jacking 1970 Dawson’s Field did not constitute an act of war –“war-like act between sovereign entities”
9 What is the cost of terrorism for aviation? Security costs USD 5.6 billion a year more than prior to 2001 Worldwide international passenger traffic is still 5% below pre-9/11 expected trend Jet fuel has increased from USD 30 to as high as USD 90 a barrel since 9/11 (Source: IATA)
10 Is terrorism insurable? UK – Pool Re Spain – Consorcio South Africa – SASRIA Israel – PTCF GAREAT – France Extremus - Germany Before 9/11 terrorism loss potential appeared to be manageable
11 Is terrorism insurable? Terrorist actions inextricably linked to state Public sector controls ways of influencing, deterring and destroying terrorists Potential loss is virtually unbounded Lloyd’s RDS – 5 airports and 15 passenger jets Inconsistent to turn to private sector for financial protection?
12 Is terrorism insurable? Insurance industry = loss mitigation and financial recovery Partnership between insurance industry and government most cost-efficient way to manage terrorism? Mandatory insurance – greatly expands risk community, spreads risk through society, cover for landmark risks remains affordable A public problem addressed by a national solution?
13 What is the response of the insurance industry? Traditional insurance market slow to react to clients needs following substantial reduction in level of cover provided post-9/11 Opportunist markets providing high level insurance policies at a premium –Berkshire Hathaway –AIG –GE Frankona US Government utilises Homeland Security in order to secure coverage including hull war at low cost Today, the traditional market now has an appetite for liability war risk
14 What is the response of the aviation industry? Security improvements – watch lists, advance passenger information, air marshals, fingerprinting Contingency planning and coordination for airports But, unharmonised measures create passenger confusion and inconvenience Aviation premiums average 15.5% higher than pre 9/11 Premiums = 70% of total risk management costs 2/3 of airlines have company-wide risk management strategy Risk management = 2.1% of airlines total revenues
15 What next? AEA Action plan Global Aviation Security Action Group