The scope of cover afforded by state terrorism schemes, as well as the premium rates charged, varies significantly across international borders.
These are the findings of a report released by Airmic in collaboration with Willis. As part of the Terrorism Insurance Review, Willis provided information on a range of terrorism pools across the world. Many of these schemes, set up so that insurers can continue to cover losses resulting from damage caused by acts of terrorism to commercial property, were formed in response to the events of September 11, 2001. But recent events, including the Boston Marathon bombing in the US and the Woolwich terrorist attack in London, continue to bring to the forefront the very real threat of terrorism that exists today.
How Broad is the Cover?
The scope of cover offered by terrorism schemes is dependent on the definition of terrorism and the exclusions that apply. In the UK, the issue of a certificate by HM Treasury is required for an act to be recognised as an “act of terrorism” for the purpose of the Pool Re scheme. In this instance, an act of terrorism is defined as:
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 HM Government.
This definition suggests that a terrorist must be connected to a recognised organisation and may therefore not encapsulate those acting as a ‘lone-wolf’.
Similarly, in the US, an “act of terrorism” has to meet certain criteria before it is certified as such by specified government departments. As part of the US definition of terrorism, the individual or individuals must be acting on behalf of any foreign person or foreign interest. Broader than both the UK and US definitions, the French definition includes ‘all types of terrorism in any form’ but no French government declaration is required, possibly paving the way for conflict between insured and insurer.
In addition to the scope of cover afforded by the definition of terrorism, insurance buyers need to be aware of the differing exclusions.
This report highlights the need for insurance buyers to fully understand the scope of coverage that is on offer and consider whether it is sufficient for their needs.
The report gives an indication of different premium rates that buyers can expect to pay for terrorism insurance in different cities around the world. For a single location client with an office building of total value €25 million, the central Paris premium (based on a property premium of €25,000) would be €3,000. In central London, the Pool Re cost (based on the same property value) would be more than twice as much at €7,500.
However, it is important to note that these figures should only be viewed as indicative because different schemes do not offer identical coverage and the commercial insurance market may be able to offer more competitive rates in some cases.
Key Considerations for Buyers
Many companies feel exposed to the threat of terrorism activity because of the nature of their business and/or the territories in which they operate. After considering the varying terms and conditions of the numerous state terrorism schemes, companies may wish to buy a global terrorism policy to supplement or replace their involvement in these schemes. This report goes some way to illustrating the complexities of designing a global terrorism insurance policy and highlights the specialist professional advice required to ensure it serves as a comprehensive response to the ongoing threat of terrorism.
Guest blogger James Borrie is a London-based Executive Director and Terrorism and Political Violence Practice Leader in Willis Global Markets International. James leads a team of Account Executives looking after global Terrorism, Sabotage and Full Political Violence Insurance, placing the business within the London and Bermudan marketplace.