In the UK, where the risk of terrorism is still very much a reality, having sufficient insurance coverage can be the key to financial stability in the event of an attack. This blog explores the nuances of terrorism insurance, its relevance in the UK, what it covers, and what it doesn’t.
What is Terrorism Insurance?
Terrorism insurance provides financial protection against losses resulting from acts of terrorism. Acts of terrorism can take different forms, such as bombings, mass shootings, chemical or biological attacks, hijacking, hostage-taking and other violent incidents that cause damage to property and infrastructure, and harm to human life.
Terrorism insurance policies typically cover a range of losses, including property damage, business interruption, and liability for injuries or deaths resulting from a terrorist attack. The coverage may also provide compensation for expenses related to emergency response, cleanup, and other associated costs. Since the 9/11 attacks in 2001, Terrorism Insurance is offered on an ‘all risks’ basis. This means it covers any loss not specifically excluded.
Additionally, insurers offer specialised policies to help mitigate the risks associated with terrorism. These policies may include risk assessments, security recommendations, and crisis management support to ensure that businesses are well prepared to handle a terrorist attack and minimise the impact of such an event.
While terrorism insurance may not be a legal requirement, arranging this type of cover is advisable for businesses operating in areas that are at a higher risk of terrorist activity.
The Role of Pool Re
Established in 1993 by the insurance industry, Pool Reinsurance (Pool Re) is a government-backed company that meets the cost of business property claims over £100,000 resulting from terrorist attacks in Great Britain. In 2022, it reduced its reinsurance pricing by 20% in Central London and up to 30% in some non-urban areas. Insurance prices also decreased as a result.
Here are some key points about Pool Re:
- Certified acts of terrorism: Pool Re defines a "certified act of terrorism" as a violent incident that results in damage in or outside the UK and includes acts committed by individuals acting on behalf of foreign entities or interests. It also covers domestic terrorism, which is a significant concern in the UK.
- Comprehensive coverage: Pool Re's coverage is extensive and goes beyond traditional acts of terrorism to include attacks involving chemical, biological, radiological, and nuclear (CBRN) substances. Furthermore, it covers acts triggered by remote digital means using cyber triggers, an emerging threat in today's world.
- Risk analysis and mitigation: Policyholders benefit from exclusive access to expert terrorism threat analysis, which is critical in assessing and mitigating risks. Policyholders can use Pool Re's VSAT tool to benchmark risk maturity against UK best practices and receive a 10% discount on their premium if they meet the benchmark standards and have portfolio sums insured in excess of £50m.
Is there a legal definition of terrorism in the UK?
Yes. The Terrorism Act 2000 defines terrorism in the UK as any action or threat of action involving serious violence, damage to property or endangering life, designed to influence the Government or intimidate the public. The use or threat must also be for the purpose of advancing a political, religious, racial, or ideological cause. It also covers actions that create a serious risk to public health or disrupt electronic systems. Planning or assisting terrorist acts is also considered a crime in the UK.
Nevertheless, Terrorism Insurance can be a complex matter due to the multiple definitions of terrorism in use. For instance, legal definitions are provided by the Reinsurance (Acts of Terrorism) Act 1993 and the Terrorism Act 2000. A number of insurance providers also have their own definitions of terrorism, which can result in gaps in coverage. Some insurers offer terrorism 'gap' cover to overcome these discrepancies.
How does terrorism insurance differ from other types of risk insurance?
Terrorism insurance is distinct from other types of risk insurance in the UK because it specifically aims to mitigate the impact of terrorist acts. Here are the key differences:
- Terrorism Insurance: This provides financial protection against losses resulting from acts of terrorism. It covers property damage, business interruption, and liability. However, it usually excludes certain forms of political risk, such as expropriation, currency inconvertibility, non-payment, and contract frustration. Determining whether an act of violence is politically motivated and falls under terrorism, political violence, or other categories can be a grey area.
- Political Risk Insurance (PRI): This covers a broader range of political risks beyond violence. It includes risks like expropriation, currency issues, and contract disputes. Rates for PRI tend to be higher than those for Standalone Terrorism Insurance. Some multinational companies manage political instability and violence risks through PRI and Standalone Terrorism Insurance. PRI covers risks that Standalone Terrorism Insurance may not, such as expropriation or currency inconvertibility.
- Political Violence Insurance (PVI): This addresses violence arising from political events, civil unrest, and strikes. While it includes terrorism, it also covers other forms of political violence. PVI rates are typically lower than those for Political Risk Insurance.
- Standalone Property Terrorism Insurance: This focuses solely on terrorism-related risks. It excludes other political risks such as expropriation or currency inconvertibility. Companies seeking targeted protection against terrorism-related losses choose Standalone Terrorism Insurance.
Understanding these differences can help you choose the right insurance policy based on your needs and circumstances.
Martyn’s Law is coming – what is it?
The Terrorism (Protection of Premises) Bill, also known as Martyn’s Law, is proposed new UK legislation that aims to improve public safety by providing better protection against terrorism. The Bill will apply to all public venues and spaces across England, Wales, Scotland, and Northern Ireland and is named after Martyn Hett, who tragically lost his life in the Manchester Arena terrorist attack in 2017.
The Bill establishes a tiered model of requirements based on the capacity and purpose of the premises. Venues will be required to take necessary steps to improve public safety, including measures such as training, sharing information, and risk assessment. The Bill aims to ensure that security preparedness is consistently delivered across the UK, embed best practices, and raise standards for public safety.
The Government is currently conducting a consultation process on the proposed legislation. Following the conclusion of the consultation process, the Government will introduce the Bill to Parliament as soon as parliamentary time allows.
Terrorism Insurance – do you really need it?
It's important for both small and large businesses, property owners, and event organisers to consider Terrorism Insurance as part of their risk management strategy.
The economic impact of terrorist attacks can disrupt economies, affecting businesses, supply chains, and investor confidence. Adequate insurance helps mitigate these financial shocks. Additionally, Terrorism Insurance ensures that businesses can recover quickly after an attack by covering property damage, business interruption, and liability.
For more information, you can explore Pool Re's website or consult with an insurance broker to tailor a policy that suits your specific needs.
What is and isn’t covered by Terrorism Insurance
As the threat of terrorist attacks persists, it's important to consider what is and isn't covered by Terrorism Insurance, should you suffer a loss and need to make a claim.
Terrorist attacks used to be more commonly targeted at well-known landmarks in major cities. However, this has changed over time, and smaller towns and cities are now at risk. Regardless of their location in the UK, both property and commercial premises are vulnerable to damage, loss, and costs resulting from a terrorist act.
Standard property and commercial policies typically do not cover losses incurred from terrorist attacks. Clients should, therefore, seek additional coverage or Standalone Terrorism Insurance to ensure protection, which may also be required by their bank.
If a motor vehicle is used in a terrorist attack, insurers are not required to pay out under a standard policy. However, the Motor Insurers' Bureau (MIB) may take a different view on this position.
It's also important to note that war and terrorist attacks are different. Insurers always exclude war because it's impossible to calculate premiums accurately. This means that damage caused by war is never covered.
Terrorism Insurance – the bottom line
In today's world, where terrorism has become a grim fact of life, having Terrorism Insurance is a necessity for businesses of all sizes. With Terrorism Insurance, you can protect your business against financial losses from property damage, business interruption, liability and other related costs due to a terrorist act. This coverage can also help you recover from a terrorist attack and get your business back on track as quickly as possible.
Contact us
If you’d like to discuss terrorism insurance with us, please call: 020 7280 3450 or email: enquiries@thecleargroup.com
