Terrorism – the evolving risk
The suspected terror attack in Westminster on 13 August has sadly, once again, brought into sharp focus how this risk is evolving.
The escalation of terror attacks and the methods employed have changed dramatically over recent years and the UK government and insurers are hastily adapting policies and legislation to reflect the evolving nature of this risk.
Only last month did the industry vote to mutualise terror risk by agreeing to an amendment to Article 75 vehicles (uninsured, domestic vehicles). From next year, the Motor Insurance Bureau will deal with all third party motor claims where terrorists driving vehicles injure or kill people on or after 1 January 2019.
That step is against Pool Re (the government-backed terrorism reinsurance pool) confirming that from April 2018, cover will be extended to include material damage and direct business interruption (BI) caused by acts of terrorism, including those using a cyber trigger. The amendment – as provided by the Counter-Terrorism and Border Security Bill - will close the potential gap for some businesses which are uninsured for BI losses linked to a terrorist attack. The Pool Re scheme will, therefore, once again adapt to accommodate real life events.
Future proofing insurance cover
In 2017 the UK government committed to amend legislation to allow Pool Re to cover non-damage business interruption losses that result from acts of terrorism.
The step by Pool Re is considered to be the first move of its kind by any government. The expansion of cyber cover will mean that cyber terrorism is now included along with chemical, biological, radioactive and nuclear risks – representing the most comprehensive and largest terrorism retro placement in the world.
Prior to this, in the event of a terrorist attack, Pool Re was only able to reimburse businesses who had suffered actual physical damage to their property, for example, by an explosion. If your property had been closed, or cordoned off or subject to a curfew, there was no cover for those financial losses due to restrictions on property or for a businesses’ ability to trade.
This was identified as an oversight in coverage following the series of terrorist attacks in 2015 and 2016 in Europe and more particularly the recent UK attacks in Westminster, Manchester and London Bridge. The current legislation is now being updated and has resulted in the draft Counter-Terrorism and Border Security Bill.
This will have a significant impact on SMEs, as highlighted by Julian Enoizi, Chief Executive Officer of Pool Re who, in March this year, said:
"We welcome and applaud the government’s commitment to amend the 1993 Legislation to allow Pool Re to be the first of the global terrorism pools to overtly extend its cover to include terrorism related non-damage business interruption.
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.
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.”
The British Insurers Brokers Association had also called for the amendment to the current terrorism legislation given their research which determined that fewer than 3% of SMEs take up any terrorism cover at all.
The nature of terrorism is likely to change in the future – be it with regard to cyber terrorist actors or those behind the wheel of a vehicles. If it is right that, currently, terrorists typically target the ‘lowest hanging fruit’, that would explain why we are still experiencing incidents of a car being driven into a crowded street or, as in the case of Borough Market, another type of public space. However, as governments respond and make it harder for terrorists to fulfil their objectives, terrorists are likely to look to other means to cause damage.
It is imperative that SMEs recognise the increasing risk and the changing nature of the risk from terrorism, particularly in urban areas. SMEs need to consider obtaining terrorism cover for non-physical damage to protect their businesses from the effects of a terrorist attack and financial losses arising from one.