Back To Business? Evaluating the economic impact of terrorism

What is the likely cost of the 11th September US attacks?
A few facts help get the idea

26 September 2001


"Not only have we had to cope with the loss of friends and colleagues, we have needed to react to the most complex insurance event the world has ever seen" Saxon Riley, Chairman, Lloyd's of London


Insurance


Initial estimates suggest the overall cost of the tragedy will be between USD 30 bn to USD 50 bn. Considerable time may be required in order to refine these estimates.

Reinsurance rates are set to rise by 30% to 40% impacting insurance rates for Property and Casualty insurance. Insurance cover for airlines
is rising by 400% to 1000% forcing governments to intervene.
Even before the incident, prices were firming in the insurance industry.

Life insurance claims and specialized coverage on the loss of key personnel is expected to top USD 8 bn as the total number of dead or
missing is now over 6,500 people.

Trading of stocks in several insurance and reinsurance companies has been halted and restarted on several occasions since 11th September.


Affected Financial Services



Despite the overall success of Disaster Recovery (DR), some eBusiness solutions - including basic eMail - were still not working around the globe ten days after the tragedy in the case of at least one major New
York based bank and several professional services firms. This is because the DR programs, in many cases, were conceived decades ago and last updated post the previous bombing of the World Trade Center in 1993.


Credit Lines


European banks have been cutting back or removing credit lines for businesses exposed to the US tragedy.

This may drive businesses with US exposure to insolvency
and increase bad debts for banks.


IT and Communications


Short Term Impact:
USD 1.5 bn to USD 2 bn

Inclusive of the immediate cost of hardware and software
replacement, over 20,000 IT and telecommunications contractors will support in-house teams for several weeks to ensure continuity of
business for financial services.

Long Term Impact on Financial Services:
USD 8 bn to USD 10 bn

The costs include telecommunications and computer equipment replacement, installation and support. Over 100,000 IT
personnel will be relocated. There will be more investment in security, data storage, back-up and disaster recovery audits, procedures and policies.


Long Term Impact to Infrastructure:
USD 5 bn to USD 8bn

The full extent of damage to telecommunications
infrastructure in Manhattan is still not known. Underground
installations will systematically need to be assessed, repaired,
redesigned, replaced and re-routed as the clean up and reconstruction continues at least until 2004.


Business Confidence


NYSE and NASDAQ were shut for four days. This is an unprecedented event. On opening again on Monday 17th September, both NYSE and NASDAQ fell heavily. By the close of business on Monday 24th September the Dow Jones Industrial Average was 27% down on its peak of 14th January 2000, NASDAQ was 70% down on its peak of 10th March 2000, FTSE-100 was 33% off its peak of 30th December 1999.

Job losses from the tragedy and its chain reaction of events are likely to be in Millions worldwide. Governments may have to intervene through old-fashioned Keynesian demand management and public sector projects may be necessary to ward off huge layoffs.


What is the fallout?


Although the US and other NATO member countries have declared a "War against Terrorism" the precise objectives and time-line are unclear.
Building a consensus with Middle-Eastern countries will prove increasingly problematic, especially as insurrections and casualties
mount. The Israel-Palestine situation is likely to create a vortex of unpredictability.

Any attack against Afghanistan, Iraq or other countries harbouring
"Terrorists" could further heighten complexity in the global political landscape and may create shear at the religion and energy fault lines.

NATO countries are more advanced in terms of their dependence on
technology infrastructure. In consequence, they are likely to suffer more from asymmetric physical, biological and electronic threats to their critical national infrastructure - including emergency services,
central government, transport, telecommunications, utilities, health care and financial services.


What kind of electronic attacks have taken place since 11th September?


Since the physical attacks in the US on 11th September, the number of high-profile cyber attacks has been limited. Commercial websites within the UK and USA have been defaced by hackers but not to the extent seen during the Serbia-NATO conflict in 1999.

11th - 20th September 2001

A group of vigilante hackers called the "Dispatchers" have taken matters into their own hands and defaced some 200 to 300 Middle Eastern
government websites and those of Palestinian Internet Service Providers.

11th - 22nd September 2001

Several websites linked both to Afghanistan's ruling Taliban militia and to Afghani opposition groups have also gone down under a barrage of hate mail and hacker attacks. The afghan-ie.com and Taleban.com sites - both pro-Taliban - and afghan.gov.af, site of the anti-Taliban Afghani Northern Alliance, have all been unreachable in the last ten days.

14th September 2001

A hacker known as "Fluffi Bunni" defaced thousands of high-profile British websites, replacing their home pages with a message mentioning
Jihad and Bin Laden. The majority of the sites were re-directed to the attacker's page for at least one hour. The Internet Service Provider
affected was forced to take the DNS servers offline prior to restoring normal service.

16th September 2001

"Dispatchers" vandalized two websites (terrorism.uk.com and terrorismteam.uk.com) operated by the Special Risks Terrorism Team, a unit of Aon Corporation, a Chicago-based worldwide risk management and insurance provider.

17th September 2001

"RaFa" took credit for defacing the home page of the Iranian Ministry of Interior. The attacker posted an image of Osama Bin Laden in flames
with revolvers pointed at each temple.

A group alled "Medanhacking" replaced the home page of the web site operated by Iran's Payame Noor University. The hackers posted a message that included the text, "from Medanhacking for US tragedy WTC and support to The dispatcher Team."

19th September 2001

The founder of a group called "The Pakistan Hackerz Club" defaced the
website of World Trade Services, a California-based firm that facilitates international eCommerce.

In a "greetings" section at the bottom of the defaced page, the attacker listed Osama Bin Laden.


Are terrorist groups using high technology?


High technology should not be discounted from the communications arsenal of international terrorists. For example, Bin Laden was known by the US National Security Agency to use a portable satellite phone in remote places in order to speak with some of his cohorts. His use of high-tech equipment tailed off a short time ago and since then, the authorities have by all accounts lost all trace of him.

Bin Laden's motivational style of leadership, which encourages day-to-day leadership to be managed by the terrorist cells themselves,
means that he does not need to communicate regularly with his people.

It is possible that terrorist groups will increasingly use steganography to covertly distribute information to their supporters and hide messages throughout the Internet and on particular web pages. Steganography is the writing of coded me