UK’s Pool Re Extends Terrorism Cover to Include Non-Damage Business Interruption

UK’s Pool Re now is able to cover losses incurred if a business cannot trade or is prevented from accessing its premises in the wake of a terrorist attack.

Before a change in the law, Pool Re, a public-private partnership that provides a reinsurance backstop for losses resulting from acts of terrorism, could only provide coverage for property damage.

The gap in insurance coverage was highlighted in the 2017 attacks on Manchester and London Bridge, where small and medium-sized businesses were shown to be particularly vulnerable with several caught behind police cordons or experiencing a reduction in footfall following the events, explained Pool Re in a statement.

These businesses suffered significant, and in some cases crippling, business interruption losses for which they could not be compensated, either because they had not purchased terrorism insurance, or because the cover excluded business interruption if their premises had not been damaged.

In order for Pool Re to expand its coverage remit, the government had to amend the 1993 Reinsurance (Acts of Terrorism) Act, which originally created the reinsurer in the wake of the Irish Republican Army’s bombing campaign on the UK mainland. The campaign had targeted high-value infrastructure and prioritized economic disruption. The amendment to the originating legislation was contained in the Counter-Terrorism and Border Security Bill 2018, which was passed by the UK Parliament on Feb. 12.

Today’s terrorist threat to the UK is very different than in 1993, with attacks across the UK and Europe since 2014 being more frequent and often less sophisticated, explained Pool Re. Although terrorists have targeted people indiscriminately, attacks have not necessarily resulted in physical damage to premises, which created a problem because most terrorism pools around the world were set up to primarily deal with property damage, added the reinsurer.

“We have worked very closely with the government, and with the industry since it opted to mutualize the non-damage risk in 2017,” said Pool Re’s Chief Executive Julian Enoizi. “Perhaps more importantly, we are already collaborating with business federations, local authorities, brokers and our member insurers, all of whom need to have open conversations with their customers about just how much may depend on having this cover if the worst should happen.”

“We will not allow terrorists to change our way of life. So when businesses raised their concerns about a gap in insurance cover following a terror attack, we worked with Pool Re to come up with a solution,” said Member of Parliament John Glen, who is Economic Secretary to the Treasury.

The law has been changed “to give businesses peace of mind, helping them to insure themselves against financial loss as a result of a terrorist attack, even if there is no physical damage to their property,” Glen added. “This means businesses will be able take out new and comprehensive policies to protect them in the future.”

“This amendment is a real turning-point for our industry’s ability to deliver the comprehensive protection businesses have been waiting for, but they’ve got to make the jump and buy the policy, and we have worked hard to make the new cover as accessible and affordable as possible,” said Pool Re’s Chief Underwriting Officer Steve Coates.

“I would encourage any business owner to speak to their insurer or broker about what their current policy includes, and ensure it is extended to deal with terrorist threats,” he continued.

The amendment makes the UK’s terrorism reinsurance pool the first in the world to extend its cover to include non-damage business interruption losses.

“Our priority has been to keep this as far as possible a private market solution and so it will be reinsured by us via a new program,” said Enoizi. “As we continue to identify and understand the protection gaps which emerge and bridge them through this unique public-private solution, we are focussing on helping the industry to grow by ensuring it becomes more comfortable with the exposure and thus reclaims more and more terrorism risk as we have seen recently with growing retentions and being able to cease contingency cover altogether.”

Pool Re’s Evolution

Pool Re said it has paid hundreds of millions in claims over its 25-year history at no cost to the taxpayer. Pool Re has evolved during the course of its history. Since April 2018, Pool Re has extended its cover to include material damage and direct business interruption caused by acts of terrorism using a cyber trigger. On March 22, 2018, the government announced its commitment to amend the 1993 Reinsurance (Acts of Terrorism) Act to enable Pool Re to extend its cover to include non-damage business interruption losses, thereby closing a protection gap that had emerged. That was amended this week.