Guide to Political Violence and Terrorism Insurance for Financial Institutions

The third element of political risk insurance financial institutions need to be aware of—after political risk insurance and comprehensive nonpayment insurance —is terrorism and political violence cover.

Terrorism and political violence insurance covers an insured against physical loss and damage, as well as business interruption costs, as a result of a terrorist act or acts of political violence.

Historically, specialist terrorism insurance has always existed, but it was limited to companies doing business in Colombia, Sri Lanka, Northern Ireland and UK. In most other territories, terrorism insurance was included in standard property insurance.

In 1993, Pool Re was set up in the UK in the wake of IRA bombings of the Baltic Exchange, owing directly to the need for a different approach to insuring terrorism. Commercial property insurers bore the costly brunt of these IRA attacks, and subsequently began to exclude terrorism as an insured peril.

The terrorist attack on the World Trade Center in New York on 11 September 2001 changed the landscape on a more global scale. With a total property damage loss of USD22.7bn—of which USD19bn was insured (GBP3.11bn in Lloyd’s of London) —major insurers stopped providing terrorism insurance within property policies. More and more Lloyd’s syndicates reacted and started providing terrorism insurance as a standalone product.

Today, there are approximately 40 insurers in London providing maximum capacity of USD3bn any one risk.

What Risks Are Covered?

Terrorism and wider political violence policies are designed to pick up the gaps left behind by exclusions in property policies. Policies can cover both physical loss and damage to property and business interruption.

On the simplest level, terrorism is defined as:

“An act, including the use of force or violence, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organisation(s), committed for political, religious or ideological purposes including the intention to influence, overthrow or sustain any government and/or to put the public in fear for such purposes”

Political violence includes riot, strike, civil commotion, revolution, war, civil war, rebellion, insurrection, sabotage, coup d’état and malicious damage, and consequential looting; these are essentially a suite of perils from which the insured may select from.

What Risks Are Not Covered?

The following list is not exhaustive, but standard-form terrorism polices do not insure against:

  • loss or damage arising from nuclear, chemical, biological or radiological (NCBR) attacks, although limited and expensive capacity is available upon request
  • loss or damage caused by confiscation, nationalisation, or any result of any order of public or government authority which deprives the insured of the use or value of its property
  • loss or damage by electronic means: cyber / computer hacking, although as with NCBR coverage, there are standalone products being developed
  • business interruption as a result of a threat or hoax. Again, Lloyd’s insurers are working to develop products to fill this gap

Market Characteristics

Terrorism and political violence insurance covers an insured against physical loss and damage.

In accessing this global marketplace, with Lloyd’s of London, Lloyd’s platforms in Singapore and Dubai, and company markets in USA and Bermuda, the following characteristics can be found:

  • specialist
  • bespoke
  • transactional
  • subjective
  • flexible
  • cover anywhere in the world
  • varying underwriter appetite


Determining whether an event is caused a terrorist cell is somewhat reliant on terrorists actually laying claim to an attack and can be quite subjective, and in more extreme cases can be rejected by local governments refusing to acknowledge the presence of terrorists in their country.

Equally, the fluidity of a situation can be contentious as with the Arab Spring and uprising against President Mubarak in Egypt: progressed rapidly from small-scale peaceful protests into a full-blown revolution.

Emerging Issues

Generally speaking acts of terrorism and political violence will always remain unpredictable. The overriding issue faced with the terrorism and political violence market is the ever-changing global political dynamics, and companies need to make sure that this risk is clearly identified and evaluated.

Terrorism and political violence will always remain unpredictable.

The formation of IS has had significant impact across the Middle East and North Africa, conjoined with a heightened threat posed by wider network; individual “Lone Wolf” attacks have increased in both frequency and complexity.

The market will, however, continue to evolve, and bespoke offerings are able to be crafted as never before; cyber terrorism in particular is at the forefront of many minds.


Guest blogger Luke Bennett Luke joined Willis in May 2011 to place Global Terrorism & Political Violence risks into the London (Re)Insurance Market. Primary responsibility for the large accounts portfolio alongside assisting in the day-to-day management of the Terrorism & Political Violence Practice. Luke graduated from Loughborough University with English Single Honours Ba, and is currently studying for ACII qualification.

Categories: Financial Services, Political Risk, Terrorism | Tags: , , ,

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