Greater coverage needed for non-damage business interruption from terrorism

The very nature of terrorism risk seems to be changing, shifting from single large, catastrophic incidents to smaller attritional losses, which involve less damage to property – but this poses a different set of challenges to re/insurers.

This is according to speakers at a seminar on terrorism crisis management at the Airmic Conference 2017, which included Arthur J Gallagher managing director Paul Bassett and executive director Justin Priestly, along with Steven Johnson, a professor at Cranfield University.

Johnson described terrorism risk transfer solutions as an evolving issue, citing the change in attacks experienced particularly in the UK.

There is not a huge amount of property damage involved in the small-scale explosives, vehicle attacks and bladed attacks, but their ease of use leads to higher frequency.

“Only reason we’ve been seeing bladed attacks is because of the lack of accessibility to materials required for bombs,” Johnson said.

As a result, AJG is seeing a greater amount of non-damage events affecting its clients, Bassett explained.

He that none of AJG’s clients from Manchester had a physical claim from the recent bombing of Manchester Arena, but there were over a dozen non-damage claims, ranging from denial of access to loss of attraction.

Bassett stressed that risk transfer is only part of the solution against terrorism, and that AJG is trying to help clients with risk management techniques, such as access to response consultants.

“When incidents do happen, we try to get information out quickly to both our clients and to underwriting markets,” said Bassett. “For example the Borough Market attack 22:38 hour last Saturday, we managed to get a report to our underwriters and out clients who probably were told they were affected before they knew they were affected.

“It’s getting that information out quick so people can put in place their business continuity plans. And also making the underwriters who may have underwritten those risks feel comfortable in the reserves they have to make and the potential exposures.”

Intelligent Insurer caught up with Steve Coates, chief underwriting officer at Pool Re, who said that greater risk awareness and risk understanding, is key to closing the penetration gap.

“We’re certainly trying to improve people’s awareness of terrorism and how our members go about selling it,” Coates said.

The other gap is the coverage gap, where the property market is happy to provide non-damage business interruption where it flows from property perils, he explained.

However, as soon as the Government says something is an act of terrorism, their policy stops because they’ve got a policy-level exclusion, and then it goes to Pool Re and the cover they sell, however Pool Re is restricted to damage.

Coates continued: “At the moment within the actual Parliament we have no remit outside of damage. So we’ve been trying to get a conversation going with lots of people, not just brokers. The market can do what it wants with non-damage business interruption. We have a part to play in the discussion, but a lot of is around how you distribute these products widely across the UK. And what is a solution for that? The risk is changing, so how can we adapt so the gap between Pool Re and the market is closed?”

Pool Re only exists to provide coverage that the market can’t, so Coates’ preferred solution is that the market provides the cover, and in the case it can’t provide the cover to the extent that it is required, then there could be a future role for Pool Re.