Property and businesses given better protection against terrorism

13 Feb 2019

Policy area: insurance

Pool Re’s insurance cover will now include business interruption – even when a terrorist incident causes no physical damage to property.  Our Policy Officer Laurence Raeburn-Smith provides our latest blog

The Counter-Terrorism and Border Security Bill has now received Royal Assent. Much has rightly been made about the Bill’s implications for extremism prevention, but its implications for the property sector and the Pool Re terrorism reinsurance fund appear to have largely slipped under the radar.

Pool Re is a Government-backed reinsurer for loss and damage caused by terrorism. It guarantees that insurers can offer terrorism cover by allowing them to reinsure their risk into a fund of about £6.5 billion with commercial retrocession of a further £2.1bn, as well as an unlimited government loan facility. When a terrorist incident is declared, insurers can draw from this pool to pay out to those affected. Without it, many insurers would simply not be capable of including terrorism coverage in their commercial policies.

Over £2 trillion of commercial property exposure is currently underwritten by Pool Re and its cover is so broad that conventional, chemical, cyber, biological, radiological and even nuclear terrorist attacks come under its remit. Until now however, if a business suffered financial loss due to a terrorist incident but there was no physical damage to the property in question, the pool would have been unable to pay out.

This left a significant gap in coverage, a gap which the BPF’s Insurance Committee identified and flagged as of serious concern.

A business cordoned off by the police could, for example, have been unable to service its customers but would have had no access to business interruption pay-out from their insurer. In the event of a major incident that closed an entire city district, or if a business was rendered inoperable for months or even years, this could have left firms and property owners out of pocket to the tune of millions.

The gap in coverage was highlighted by Pool Re back in 2015 following several ‘lone wolf’ terrorist incidents across the globe which caused little or no physical damage to property. It was however the London Bridge and Borough Market terrorist attack in June 2017 that exposed the urgent need to address the gap in Pool Re’s coverage to the public and politicians.  

During this incident there was only minimal actual damage to property, but traders were unable to open stores, serve their customers and continue trading, suffering losses estimated at £1.4 million. This sparked debate in the media as to whether traders would be compensated and undoubtedly caused a lot of distress to those involved. 

Thankfully in the case of the Borough Market attack the claims of those market traders who had had business interruption insurance were paid regardless of the possibility of exclusions. This may not have been the case though and there was no guarantee it would have been the case again in the future.

The BPF is therefore delighted that the Government has listened and acted upon our advice.

We and Pool Re have had concerns that small businesses and property owners had not appreciated the level of their exposure. Hopefully now that they qualify for cover for non-damage, business interruption insurers will be able to offer full cover against terrorism almost automatically and at an easily affordable price in their "global" small business policies.

Our Insurance Committee has pushed hard for reform to Pool Re over the years and expects this work to continue as new challenges present themselves. We hope that as the threat from terrorism evolves, policymakers continue to look proactively at property insurance and continue to ensure that Pool Re’s vital coverage evolves too.