Protecting you and your assets against the threat of terrorism
Given the threat of terrorism in the UK, there is a surprising low take up rate for terrorism insurance outside of central London and other major cities. Why? Some businesses may not be aware that terrorism cover is excluded from virtually all Material Damage (Property) and Business Interruption policies and separate cover is required, whereas others will feel that the risk is too low to justify the premium, even though an attack could wipe out their business.
Historically, the main terrorist threat was from IRA bombing campaigns and there was an element of predictability as regards the nature of their targets, however, recent events in France and Tunisia, along with random attacks in London have highlighted the unpredictable nature of the threats we now face.
So, why should you now buy terrorism insurance?
1. Protect your assets. A fairly obvious answer. Why would you not cover what is probably your biggest assets against a potentially catastrophic risk even if you feel the risk is minimal? Terrorism cover is increasingly a requirement of leases/rental agreements or when finance is involved and if you are a property owner, the cost of the insurance can generally be passed on to your tenant.
2. It is not just bombs. The legal definition of terrorism is wider than most people’s general view of what constitutes terrorist activity and applies to organised violence with the aim of political change. In addition to the ‘mainstream’ terrorist groups, terrorism could include some of the activities of protest groups such as anti-abortionists, animal rights, socialist workers and anti-austerity groups and in recent years Pool Re have paid a claim for damage caused by an anarchist group.
3. The doomsday scenario (I’ll go up with it) is very unlikely. In reality, whilst a terrorist incident could completely wipe out a locality, those on the fringe will only suffer partial damage and even if you do go up with your business, how about dependents who are hopefully safe elsewhere without their means of support?
4. Terrorism premiums have been reduced. The main terrorism insurer, Pool Re, are trying to encourage the take up rate of terrorism cover and have reduced their rates outside of London and the big cities, as well as introducing discounts for smaller businesses and there are no minimum premiums. Pool Re are also facing competition from a number of insurers who are prepared to write terrorism risks again to produce a more competitive market.
The Background to Terrorism Insurance
Insurers used to deal with terrorism claims as either fire or explosion without differentiating from other causes, but as losses mounted from IRA and other extremist activity, the Government took responsibility for terrorist damage in Northern Ireland in 1977. Insurers continued full cover on the UK mainland, but were increasingly concerned about the unpredictability and scale of potential losses and restricted cover following the London Baltic Exchange bombing in 1992. Following negotiations with the Government, insurers agreed to provide limited cover for commercial property and business interruption risks with a Government backed scheme (Pool RE) set up in 1993 for clients requiring full cover. After the Twin Towers attack on September 11th 2001, insurers excluded all terrorism cover from most policies and for many years Pool Re was generally the only source of terrorism cover available for commercial property. UK insurers did maintain full terrorism cover for domestic properties, but not blocks of flats.
The Pool Re scheme involves the sharing of losses between members (pretty much every commercial property insurer in the UK), with the Government providing a financial guarantee to step in if the scheme reserves are exhausted.
The Pool Re scheme provides cover for damage to commercial property (and associated Business Interruption) as a result of an act of terrorism to include fire, explosion, aircraft and explosion, as well as chemical, biological, radiological or nuclear attack and from April 2018 the scheme was extended to provide physical damage from cyber terrorism. However, war risks are excluded.
At present, under the 1993 Terrorism Act, Pool Re are restricted to providing business interruption cover for losses relating to physical damage only. However, the 2017 Borough Market and London Bridge attacks where Police cordoned off the areas (Borough Market was closed for 10 days) highlighted a gap in cover. As many of the local businesses affected did not suffer damage to their properties, they were not covered for the interruption arising from the denial of access to the area. Denial of access cover is readily available for non-terrorist related incidents and the Government have now agreed to amend the Act to allow Pool Re to provide wider cover. The intent was agreed in March 2018, but no timeframe given for the change in legislation.
The 1993 Reinsurance (Acts of Terrorism) Act restricted Pool Re to only provide business interruption cover arising from damage to commercial property, but because many of the local
Terrorism cover is provided to the customer via the Pool Re member insurer and if a claim occurs that is deemed an act of terrorism by the Government, the member insurer deals with the claim and is then reimbursed by Pool Re.
Pool Re do have a rule that all property under the same ownership must be insured to avoid selection against them (ie those just seeking to insure higher risk locations) and offer discounts for risks participating in the National Counter-terrorism Security Office initiative as part of the crowded places programme.
There are a few alternative insurers to Pool Re, although they generally do not offer such wide cover as the Pool Re Scheme but can offer a more flexible approach by allowing customers to choose which locations they wish to insure or covering multi-location portfolios of property on a first loss basis.
The Definition of Terrorism
The Pool Re Scheme uses the definition of an Act of Terrorism contained in the Reinsurance (Acts of Terrorism) Act 1993:
“…acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto”
This factsheet deals with terrorism cover relating to Material Damage and Business Interruption policies. Terrorism cover is generally included in Employers Liability policies (subject to a lower indemnity limit of £5m), but may be excluded or restricted in Marine, Public Liability and Motor Fleet policies. The practice of individual insurers can vary.
We hope that you have found this factsheet of use and for further information please speak to your usual contact at Nsure or Mike Bickers on 01903 520200 or email firstname.lastname@example.org