PCS Terror Index: What You Need to Know

By Tom Johansmeyer August 5, 2016

Unfortunately, 2016 has been an active year for terror. Year to date, two incidents in the United States have led to 49 fatalities. Turkey has suffered more than the recent attempted coup d’etat and Ataturk airport bombing. According to Verisk Maplecroft, 154 terror events have occurred in Turkey this year, with 346 fatalities and 1,140 casualties. This is a significant increase compared with the same period in 2015, when there were 71 fatalities and 322 injuries across 111 incidents.

While the year’s events have been smaller and focused on causing death rather than (insured) physical damage, the global insurance and reinsurance industry has begun to take notice. The uptick in attacks has been largely concentrated in the eastern part of Turkey and may not be indicative of a major strike against a “trophy” target. But it’s always best to be prepared.

With that in mind, it’s helpful to understand how PCS® handles terror catastrophe events—and how to use the PCS Catastrophe Loss Index most effectively in industry loss warranties (ILWs).

What regions does PCS cover? PCS covers natural and man-made perils in the United States, Canada, and Turkey. That includes losses occurring from various forms of terror, political violence, and civil commotion, as long as there’s an insured property loss commensurate with PCS thresholds: $25 million in the United States, C$25 million in Canada, and TRY30 million in Turkey. In conjunction with Verisk Maplecroft, we can also provide custom reporting alternatives in other regions.

What classes of business does PCS cover for terror events? The PCS process for terror is no different from the process for other catastrophes: it’s not a separate operation. Estimates are broken down by state/province and class of business (personal, auto/motor, and commercial). The only exception is that PCS does provide a separate estimate for workers' compensation from TRIA-certified events in the United States. (We launched workers' compensation following the terror attacks of September 11, 2001.) While such an event has not occurred since then, we’ve verified our ability to deliver an estimate in the unfortunate event that a relevant attack occurs.

Is “terror” a peril? You won’t see terror listed in a PCS catastrophe bulletin, except perhaps in the adjuster notes at the bottom of the document. Rather, an event would be categorized as “fire and explosion” or “civil commotion.” In a U.S. ILW using PCS as a trigger, you’ll need to pair the PCS industry loss estimate with U.S. Treasury Department terror event certification or Verisk Maplecroft event definition. In Canada and Turkey, the ILW would need independent event definition from either the relevant government body or Verisk Maplecroft.

What about CBRN? Chemical, biological, radiological, and nuclear (CBRN) designation won’t show up as a peril in the PCS catastrophe bulletin either. If you plan to exclude CBRN, you’ll need an additional reporting agent to handle it. Verisk Maplecroft includes CBRN in its event descriptions, making it useful for this purpose.

How long does the reporting process stay open? As with other catastrophe events, terror events remain open until PCS has a stable estimate. In the United States, events of less than $250 million generally receive only one estimate. Those that appear likely to exceed $250 million industrywide are resurveyed every 60 days until there are two consecutive estimates with approximately the same underlying estimates (claim counts and industry loss by state and class of business) and no indication of other factors that could push the estimate higher (such as pending class action litigation). In Canada and Turkey, all events that appear likely to exceed the PCS catastrophe threshold are resurveyed until the estimates are stable.

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Tom Johansmeyer

Tom Johansmeyer is Assistant Vice President – PCS Strategy and Development at ISO Claims Analytics, a division of Verisk Insurance Solutions. He leads all client- and market-facing activities at PCS, including new market entry, new solution development, and reinsurance/ILS activity. Currently, Tom is spearheading initiatives in global terror, global energy and marine, and regional property-catastrophe loss aggregation. Previously, Tom held insurance industry roles at Guy Carpenter (where he launched the first corporate blog in the reinsurance sector) and Deloitte. He’s a veteran of the US Army, where he proudly pushed paper in a personnel position in the late 1990s.