The Treasury has released the final report of the 2018 Triennial Review into the Terrorism Insurance Act 2003, recommending that the act remain in force and the terrorism insurance scheme remain in place, but rejecting the proposed extension into cyber terrorism.
The scheme, administered by the Australian Reinsurance Pool Corporation (ARPC), was established under the TI Act as a temporary measure to alleviate a market failure and the wider economic impact due to global reinsurers refusing to underwrite for loss or damage to commercial property.
The TI Act requires that the TI Act – and the ARPC scheme which administers the TI Act – be evaluated at least once every three years to determine whether it should continue.
According to the review, “in the absence of the act, there would likely be a market failure in the terrorism insurance market with wider economic implications.”
“In the 2018 Triennial Review of the TI Act, the Treasury has recommended that ARPC continue to provide terrorism reinsurance covering the Australian commercial and high-value residential property market,” said Christopher Wallace, ARPC chief executive. “This is good news for the Australian business sector, the insurance industry, and the broader Australian economy, which would rely on this coverage to recover from the effects of a declared terrorist incident.”
The review, however, turned down the bid for ARPC to be extended to the provide coverage for cyber terrorism “at this time.”
“Cyber terrorism is an emerging risk and there is yet to be a clear and evident market failure in relation to physical property damage from cyber terrorism requiring government intervention through the act at this time,” the Treasury wrote, adding that it “will continue to monitor developments in the cyber insurance market and the evolving cyber security environment.”
The 2018 review also considered the appropriate level of compensation the government should receive from the ARPC for the financial benefits it provides, and noted that the current scope of the scheme, the approach to declaring a terrorism incident and the pricing of the scheme continue to be appropriate.