28 March 2018Analysis

UK extends Pool Re terrorism cover to include non-damage business interruption

The UK Government is extending the terrorism cover offered through Pool Re to include non-damage business interruption (BI) losses that result from acts of terrorism.

Pool Re, whose membership includes insurance companies, Lloyd’s syndicates and captives - including specialist insurers based overseas - is currently restricted by the 1993 Reinsurance (Acts of Terrorism) Act only to pay out if physical damage has occurred to commercial property.

This means that businesses, inside a police cordon, that suffer financial loss through being unable to access their property or to trade, are only covered if there has been physical damage during a terrorist attack.

The economic secretary to the treasury John Glen said that the government intends to legislate to allow Pool Re to extend their terrorism insurance scheme to include non-damage business interruption insurance.

Pool Re had identified the potential protection gap as a result of the spate of attacks across Europe in 2015/6. However, the terrorist attacks in Westminster, Manchester and London Bridge highlighted the actual impact of the gap in UK provisions for terrorism insurance coverage. This caused Pool Re to suggest its cover evolve to ensure continued efficacy in the face of a changing threat. It has already responded to the threat of a cyber trigger and from April 2018 Pool Re will extend its cover to include material damage and direct business interruption caused by acts of terrorism using a cyber trigger.

“After months of extensive collaboration between ourselves and the Government, today’s announcement represents another landmark moment for the insurance industry’s ability to provide a comprehensive response to acts of terrorism in the UK and demonstrates the strength of public/private partnership in disaster risk financing,” said Pool Re CEO Julian Enoizi.

“This amendment will close the terrorism insurance gap for businesses up and down the country, which, combined with our efforts to make cover more affordable for SMEs and regional businesses across Great Britain, will increase the resilience of the economy. Businesses can be confident they will be covered in the event of a terrorist attack, and able to get back on their feet quickly for the benefit of their community, customers and suppliers,” Enoizi added.

Pool Re was formed in 1993 by the insurance industry in cooperation with the UK government in the wake of the IRA bombing campaign on the UK mainland. Structured as a commercial reinsurer, Pool Re is a mutual whose members comprise the vast majority of insurers and Lloyd’s syndicates which offer commercial property insurance in Great Britain. Ceding terrorism risk to Pool Re affords member insurers a guarantee ensuring that they can provide cover for losses resulting from acts of terrorism, regardless of the scale of the claims.

The British Insurance Brokers' Association (BIBA) also welcomed the UK government’s announcement. “Both BIBA members and MPs had raised with us the changing nature of terrorism which is leaving businesses exposed,” said Graeme Trudgill, BIBA executive director. “We raised our concerns with Pool Re on the need to extend their scheme. We also recognise the need to encourage more small businesses to buy any kind of terrorism cover as fewer than 3 percent of SMEs take up any cover at all,” Trudgill noted.