Dirty bombs — Treacherous and unpredictable

Munich Re believes that the risks of a dirty bomb attack on a company should be excluded from workers' compensation insurance.

A dirty bomb is a conventional explosive packed with radioactive, bacterial or chemical material which scatters when the bomb goes off, thereby causing widespread contamination.

Being relatively easy to make, dirty bombs are ideal for use by terrorists. The general lack of information and experience in this area has prompted Munich Re to analyse the risks associated with dirty bombs. This text focuses on the particular problems involved in the field of workers' compensation insurance.

It is unclear how one would go about classifying such a loss event. The primary effect of a dirty bomb from the detonation of the explosive would be categorised as an industrial accident. On the other hand, the secondary effect, i.e. the consequences of contamination caused by nuclear, biological or chemical substances, would be classified as an industrial disease.

The duration and extent of contamination would be very difficult to calculate in advance, as it is not clear how many people would be exposed to a harmful substance for what length of time and how many diseases (such as cancer) would develop after lengthy latency periods.

Risks of micro-organisms and hazardous substances

There is also the additional risk that micro-organisms could be used for which the medical world has no effective treatment, as they have long been eradicated and specially created in a laboratory for the purpose of the attack. It is therefore practically impossible to say how many people would die or become occupationally disabled within a given period of time.

This difficulty is compounded by the fact that hazardous substances could also spread through air or water. The harmful effects would vary greatly depending on the direction of the wind or current — making them incalculable risks for insurers and reinsurers. For example, a dirty bomb detonates close to the border between two countries. In such a case, it is likely that two different workers' compensation systems would be affected by one and the same event.

The potential risks and hazards of an attack with a dirty bomb are therefore far from calculable in workers' compensation insurance. A causal link between bombs and occupational risk does not exist either, as it is impossible to define the event in terms of time and location.

Munich Re therefore regards the total exclusion of NBCR perils from workers' compensation insurance as both necessary and reasonable in order to ensure the long-term existence of workers' compensation systems and to guarantee the continued payment of indemnification to victims of industrial accidents and diseases.

Furthermore, it is customary in workers' compensation insurance to classify risks partially on the basis of the past claims experience of each individual employer, a process which usually results in a range of premium loadings or discounts.

If this process also had to weigh up the risk of terrorist attacks, a company with a low risk of industrial accident and a correspondingly low premium would suddenly find itself in a high category following a terrorist attack; a concept that runs counter to the actual logic behind workers' compensation insurance.