Reference no: EM131518941

Companies are rarely faced with counsel as diverse and contradictory as that on terrorism risk management. For instance, the Organisation for Economic Cooperation and Development (OECD) thinks the danger is so great that insurance should be mandatory, while others say it is so small that action does not even merit a cost-benefit analysis. As such, it is possible that the issue has little to do with actual risk, and much more to do with the perception of risk. After all, although it may not seem like it, terrorism is waning and according to the US terrorism Country Report, international terrorism has been in decline since 1987, with fewer than half as many incidents in 2005 than annually during the peak years of the mid-1980s. Moreover, in spite of the horrific events of September 11 2001, in New York, fewer people were killed by acts of international terrorism in that year than in 1998. What has changed, however, has been the emergence of the once-sheltered US business sector as a target for international terrorism. Businesses are now more likely to be attacked than other targets, including diplomatic, government and military facilities and two-thirds of those attacks invariably use bombs, not in the Middle East, but in South America and Asia. For this reason it can be argued that business needs to catch up on the lessons of terrorism management, long-since applied in diplomatic and military circles.

After September 11 2001, the new focus on terrorism in companies saw all eyes turn to insurance and, thanks to a US state reinsurance scheme, four years later, 44 per cent of US businesses are covered against terrorism. In the heavy lobbying that preceded this move, it was assumed that insurance was unquestionably desirable in the face of terrorism risks, and the OECD went so far as to call for mandatory terrorism insurance. However, the OECD's conclusions were rooted in an analysis of September 11, and it argued that a similar event now would prove even more costly, making the paucity of insurance alarming. This begs the question of whether businesses should be prepared for more attacks along the lines of September 11. According to Justin Priestley, director of the crisis management division at risk managers Aon: 'It will be years before another such attack.' The war on terror has knocked back the expertise, commanders and financing of al-Qaeda and the foreseeable terrorism risk is now of the home-grown variety, on soft targets, he says. The attacks in London on 7 July 2005 were typical of this under-resourced, 'brand terrorism'. While this was the deadliest single terrorism event in London, with the most explosions, one study by the Victoria Transport Policy Institute argues, that when commuters view public transport as dangerous and switch to cars, traffic accidents kill and maim more people than terrorism, and this makes it vital to manage perceptions of risk. Thus public transport and companies too must be seen to be exercising a duty of care if they are to continue business as normal.

Moreover, being a visibly soft target is a poor management strategy, whether or not you are in a terrorism-target city.

In the US, 2 per cent of disasters that befall companies are the result of malicious acts and so there are very few are acts of terrorism; disgruntled staff are a far greater threat. Indeed, in food production or the chemical industry, the potential for malicious damage makes the security of production facilities a corporate duty and the same element of responsibility applies to contingency planning. For example, a recent survey by insurer Royal & SunAlliance found that, since the London attacks, just one in seven British businesses had reviewed their contingency plans for terrorist attacks, although in London one-third had. Yet across all potential business disasters, including fire, avian flu, flooding and hurricanes, the consequences of terrorism are similar to those of other risks; premises can be destroyed, staff killed and communication temporarily destroyed.

Essentially, poor preparation for terror attacks reflects weak risk management. In the past two years, vanguard companies have grasped this and begun turning to specialist advisers to ensure they are better prepared. For example, security experts can train staff at entrances to 15 spot a reconnaissance operation and advise on the design of buildings, says Mark Cooper, a director at security consultancy C2i International. In concentrating resources on security and contingency planning, companies can also reduce terrorism insurance premiums and this is particularly important once terrorism insurance is needed, says Graham Heale, underwriting director at Royal & SunAlliance. Through the Pool-Re system, UK companies have access to terrorism cover across all their properties. But often, companies seek insurance only for a trophy building or new buildings where financiers require such cover. This has caused the stand-alone market, which allows for bespoke terrorism insurance to grow to a capacity in 2006 of $1.3bn, says Aon. Thus companies are becoming more sophisticated in their response to terrorism risk.

The best are improving their security and contingency planning and buying targeted insurance policies. But many more have yet to see that the business consequences of terrorism resemble those of many other possible disasters, which can, and should, be prepared for. Source: Luesby, J. (2006) Terrorism: it is perception that counts, Financial Times, 25 April

1. What are your views on the risks facing British business from international and domestisc terrorism?

2. Do you feel that business takes these risks seriously enough and, from what you have read in the chapter about the process of perception, how do you account for the apparent lack of attention focused on this matter?

3. What, in your view, should be the approach of British businesses to the potential threats from international and domestic terrorism, and what practical steps could firms take to protect their employees and customers to risks of this type?