Sadly, the frequency, audacity and geographical reach of terrorist attacks has noticeably increased in recent years. Understandably, businesses, property owners, and insurers are concerned with mitigating the risks posed by the increasingly prevalent, damaging and random terrorist attacks.
Typically, losses, costs, damages and expenses from terrorism are usually excluded from standard business and Landlord Insurance policies. As such, terrorism cover must either be added on as an extension to cover, or purchased as a stand-alone policy. By adding terrorism cover to your policies, you can protect your business or property from this ever-growing set of threats.
The Pool Reinsurance Company
After financial losses sustained during the Troubles in the 1980s, the UK insurance industry felt that it could no longer sustainably cover the damage caused by terrorist acts within a standard Property Insurance policy. In response, the government created the Pool Reinsurance Company (Pool Re), a government-backed insurance pool, in 1993.
Pool Re is a programme where participating insurers pay losses from terrorism up to a specific limit. If damages exceed that threshold, insurers draw from Pool Re’s accumulated funds. If Pool Re cannot cover the losses, the company turns to the government.
Pool Re guarantees that insurers can provide terrorism cover and meet the insured’s claims through underwriting by the government. Several UK insurers are not affiliated with Pool Re and are therefore not able to offer terrorism cover. In these cases, a stand-alone terrorism cover can be arranged.
Pool Re only applies to England, Wales and Scotland; it does not extend to the Channel Islands or the Isle of Man. A separate scheme exists in Northern Ireland where the insured must prove the damage was caused by terrorist action. If successful, the insured can pursue recovery from the government.
What is Terrorism?
The complexity of terrorism insurance usually arises from the discrepancy between the actual definitions of terrorism. In the United Kingdom, both the Reinsurance (Acts of Terrorism) Act 1993 and the Terrorism Act 2000 have their own statutory definitions of terrorism.
Different insurers also have their own definitions of terrorism, which can lead to confusion and gaps in cover. As a result, some insurers offer terrorism ‘gap’ cover.
As a general rule, insurers define terrorism as an act:
- That includes but is not limited to the use of force, violence or threats against any person or group of persons.
- Made by someone working alone, on behalf of or in connection to any organisation or government.
- Committed for political, religious, ideological or similar purposes, including the intention to influence any government and or to put any section of the public in fear.
Because of a 2003 expansion of cover triggered by the Sept. 2001 attacks on the United States, terrorism insurance is offered on an ‘all risks’ basis. Effectively, this means protection is provided for any loss which is not explicitly excluded. Make sure that you know and understand precisely what your own policy covers and excludes.
Typical Terrorism Cover Exclusions
Because terrorism cover is offered on an ‘all risks’ basis, policies will generally name standard and specific exclusions:
- Losses sustained from acts of war
- Losses suffered from digital and cyber risks
- Losses suffered from strikes, riots and civil unrest
- Particular properties, including those located on licensed nuclear sites and those insured under marine, aviation or motor policies
What about Liability Insurance?
Liability Risks Terrorism creates numerous liability risks, including public liability and employers’ liability concerns.
Because terrorist acts happen randomly and can cause significant damage, businesses with inadequate public liability cover are particularly vulnerable. If a company is found liable for a third-party injury as a result of a terrorist attack, that business may have to cover massive losses.
Public & Property Owners Liability
Public Liability Insurance (including Property Owners Liability) provides indemnity for your legal liability following an injury to a member of the public or third party in the course of your business or property ownership. For example, an explosion at your property causes injury to a passer-by.
This liability generally applies to property located in congested, urban areas or near potential terrorist targets where many people could be affected by a single attack.
Inadequate employers’ liability is also a concern. Some employers opt for the minimum employers’ liability amount of £5 million. Still, losses resulting from terrorist action can easily exceed the required minimum if multiple employees are injured while at work.
Particularly vulnerable businesses, such as those with a large number of employees in a single urban location, should consider purchasing higher levels of Employers Liability cover.
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