Terrorism Insurance

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Mumbai was attacked by terrorists like never before and it is being considered as the biggest terror attacks on Mumbai.

 

No one has yet estimated the amount of damage suffered by the Taj and Oberoi Hotels. I saw the picture of Harbour Bar at the Taj Hotel in the Times Of India, it left me speechless, here it is :

                    taj_terror

Any terrorist attack can cause significant damage to the property. Insurers typically have a risk analysis for any events before they provide cover for it, but I do not think there was any risk analysis ever done for terrorist attacks. The same applied to the 9/11 attack on US. The insurance companies in US post 9/11 stopped giving insurance against terrorist activities.

After September 11, 2001, many businesses were no longer able to purchase insurance protecting against property losses that might occur in future terrorist attacks.Addressing this problem, Congress enacted the Terrorism Risk Insurance Act of 20021 (TRIA) to create a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act  requires insurers to offer terrorism insurance to their commercial policyholders, preserves state regulation of this type of insurance, and directs the Secretary of the Treasury to administer a program for sharing terrorism losses. The three-year program that TRIA created backs up commercial property and casualty insurance, covering up to $100 billion each year after set insurer deductibles. The government pays 90% of insured losses over the deductible, with the insurer paying 10%.

A similar thing might happen with insurance companies in India, with so many terrorist attacks happening frequently. So before buying any insurance, it needs to be ensure that the policy covers damages due to terrorist activities. This is more true for the businesses. So few months back, TOI reported increase in adding terrorism insurance by people in India. It is a sensible move and should be done by everyone.

Surviving Layoffs - Financially

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We are certainly looking at a global slowdown in economy. With it comes the layoffs. I was discussing with one of my wife’s friend who is in retail industry on “Why during a recession the axe first falls on junior employees?”. If the economy is real bad, then only the senior management (upper layer) is targeted. Economically, it makes sense (if we are talking about purely cost-cutting) to reduce the management layers than the one at the last rung in the ladder. How many believe that removing upper layers will break the hierarchy and lower levels would be difficult to manage? May be, the answer depends, on which level you are currently working !! But, laying off at lower layers gives an impression of cost-cutting, spreading cheers among the shareholders.

Another thing which I hate, when company goes through rough patches, is the lack of clarity among employees, which comes from the top. Usually, no one is clear what will happen! Instead if the company openly communicates the state of the company to its employees and then does a pay cut (instead of firing), it will make more sense.

The fact is that no-one can escape the layoff/pink-slip in today’s uncertain times and hence it is prudent to prepare for it. One of the most important aspect of lay-off is the sudden loss of income (apart from the frustration and loss of self-esteem).

Here are some tips that might help you survive (or even blossom) during these tough times:

1) Severance Package: Some companies have a fixed policy of how much severance package is given out to laid off employees. For example, my company provide the gross income for (one + number of years of you service)  months. So I just completed two years, and hence if I get the pink-slip, I will get (one + two) = three months of gross salary. It is important that you find out what policy your company has, since sometimes the package can be negotiable. This means, if you get more, you can survive more months without job.

2) Reduce Debts : Yes, it looks like a common sense. If the income is gone, the expenditure has to go down. But the point here is that if you are still employed and the markets are uncertain, why wait till you get to hear you last day in company. Why not start reducing your liabilities?

  • Credit cards : One of the biggest enemy of a slowdown economy. If you notice carefully, some of the credit card companies have themselves started charging more from customers to battle the slowing economy. So pay off as soon as you can. Also just remove all those credit cards from your and your spouse’s wallet and dump it inside the locker.
  • Car loans : If you have that big car, the status symbol, which you brought when the economy was booming and you were the king, it is time to think it as a liability, a burden. Think carefully, can you switch to a lower car (Diwali times calls for a good deal while switching cars), else can you save enough to pay-off the loan, do it (even if you have to incur the pre-payment charges) .
  • Home Loans : You can not do anything about this, except that in really worst situation, you can
    • Sell it, (but these times are not good for selling either)
    • Rent it out (you can shift to some other rented apartment with a lower rent). Desperate times needs desperate measures.
  • Children education/marriage : Unless you are on the verge of marrying your child or sending him for higher education, you just have to find some source of income to handle the expenses.

3) Reduce Home expenses: If you already out of job or you feel that it might happen, try to reduce your daily expenses. No longer dinning out or take home calls or those late-night parties or expensive cuisines. Reduce the expense of travel, booze, visit to multiplexes and stick to only essentials. It might look like an overkill if you are still having your job, but reducing these expenses gets you into the habit (which you have lost over the period of time) and also it causes the saving of that money.

4)  Emergency Funds : If you have created the emergency funds like liquid cash(FDs) and jewellery, try to utilize them at the very last moment.  Break that FD or sell that gold jewellery only after you have cut down your expenses to bare minimum. If you don’t have such a fund, start thinking of creating it. The essential is a) three-six months of household expenses in liquid cash (Fixed Deposit is better) b)

 

                                                         To be continued …