What Is The Real Impact To Your Business From Terrorism?

The threat from terrorism has changed dramatically in recent years. No longer is the ideology of Jihad confined to the radicalized youth of the Middle East, instead, the ideology itself - and its spread via social media - has changed terrorism across the world. The hierarchal structure of pre 9/11 Al-Qai’da no longer exists, lone wolf attacks present the highest terrorism threat and homegrown terrorism has erupted across the globe.

As the threat from terrorism changes, is your business keeping up with the changing landscape and is the impact from terrorism to your business really understood?

The impacts of terrorism can be broadly divided into two areas;

As we know, the direct impact of terrorism can be catastrophic, but the reality is that the risk of a terrorist attack leading to incapacitating damage is negligible for most businesses.

The majority of business risk from terrorism sits in the indirect impact areas. These impacts are often neglected by businesses, yet these impacts can cause significant damage and losses if not monitored and mitigated.

Our chart below can help you begin to understand the potential impacts that terrorism may present to your business.

Direct Impact

Terrorism can have a significant direct impact for businesses with assets, operations or personnel in High Risk Terrorism locations. The main risks are;

• damage to assets

• loss of assets

• restrictions to operations

• injury or death of personnel

While the impact of a terrorist attack can vary significantly from business to business, it is uniformly paramount that businesses facing a direct impact from terrorism mitigate the risk to protect their assets, operations and personnel.

Indirect Impact

The indirect impact from terrorism is complex and nearly impossible to estimate. However, the indirect cost from terrorism can be up to 20 times larger than the direct cost.

Indirect cost can include:

• Increased insurance premiums

• Increased security costs

• Reduction in Foreign Direct Investment (FDI)

• Changes to consumer behaviour

• Decreased GDP

• Increased government spending

Insurance

Following a large-scale terrorist attack, insurance premiums can increase significantly. Post 9/11 insurance premiums for large infrastructure in the United States skyrocketed. Insurers increased Chicago’s O'Hare Airport’s premium from $125,000 to $6.9 million.

A significant increase in insurance premiums may severely affect a business and force a change of operating location. Some countries such as Australia, the UK, France, the US and Germany all now have Terrorism Risk Insurance Acts or similar policies that reduce inflated premiums, however this is not the case for most countries around the world.

Security

In the aftermath of a large-scale terrorist attack or persistent low level terrorism campaigns, the perceived physical security risk increases significantly. While the true risk may not change, the need to mitigate the perceived risk remains important.

For companies that have offshore assets in HTR locations, the duty of care of the employer means that any expats or travellers to these locations must experience the same level of safety as they would conducting business in their home country. Additional security measures are require to mitigate any real or perceived threat, which can be costly.

In HTR location, physical security should be exercised using a risk based approach. Therefore as the risk from terrorism increases, the cost of security will increase too.

Foreign Direct Investment

The effect of terrorism is not uniform for FDI. The modus operandi of the terrorist group has significant impact to the effect on FDI. Large-scale catastrophic attacks generally have little or no effect on FDI, whereas small-scale persistent campaigns can affect FDI significantly.

FDI was only slightly affected after 9/11 and actually increased in Spain post the 2005 Madrid bombing.

However, in Nigeria, the rise of Boko Haram caused FDI to decrease by $6.1 billion in 2010 when the group began its campaign. This decrease has continued and the FDI has decreased from 5% (2010) to 1% (2014). Compared to neighbouring countries, such as Benin, this decrease is not consistent with FDI changes in the region.

Changes to consumer behaviour

After a terrorist attack, or during an ongoing terrorism campaign, consumers change their behaviour in response to the change in threat. People invest more money into insurance and protection, which as a result diverts funds from other areas. In the early aftermath of a large-scale terrorist attack, fear of a repeat attack can prevent consumers from spending or engaging in social activity, which has an immediate, albeit short lived, effect on the economy.

Decrease GDP

Terrorism can affect GDP. This can be a knock-on effect from a decrease in FDI, reduced trade and changes in consumer patterns. In Colombia, there is an inverse correlation between terrorist activity and GDP. While not all changes can be directly attributed to terrorism, the strong correlation shows how terrorism can affect the economy.

Increase government spending

In general, the government absorbs most of the financial burden from terrorism. Therefore, in the aftermath of a terrorist attack, funds are diverted away from infrastructure investments, social investments, education, healthcare and R&D. Legislative and political stalemate in the aftermath of a terrorist attack can cause issues for many businesses.

Applying a three layered approach to terrorism is an effective and robust way to protect your business from the constantly changing threats it faces.

For a FREE Terrorism Risk Assessment for your business, contact one of our qualified analysts – team@analyticalinsight.com.au

Our Terrorism Risk Assessments analyses the potential direct and indirect impacts your business may currently face and threats you may face in the future as the world of terrorism continues to change.

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