In light of the recent horrifying London Bridge terrorist attack, the question of terrorism cover seems, unfortunately, more relevant than ever. However, the sector has been driven in recent times by a continual change in the fundamental definition of terrorism insurance and what this cover entails.
Speaking with Insurance Business, Gary Barlow, terrorism underwriting manager at NMU, detailed how, following the terrorist atrocities seen in London and Manchester, there has been a significant re-focus in terms of the threats the terrorism market needs to address and respond to.
While the original function of terrorism cover was to respond to property losses and subsequent financial losses, Barlow said, “the noticeable trend since 2017 has been the shift in concern away from direct property damage, to ensuring businesses are adequately insured for financial losses following non-property damage acts of terrorism.”
Discussing how the definition of terrorism cover has changed means also analysing how the methods of carrying out attacks have developed, and Barlow outlined the movement away from sophisticated and planned IED attacks in recent years.
“Terrorist networks and cell sizes have been drastically reducing in group size,” Barlow said, “making the detection of planning and preparing acts of terrorism a significant challenge for our security services… this results in the risk of a higher frequency of less sophisticated attacks.”
“Most people considered the IRA, for example, as an organisation,” said Julian Enoizi, chief executive of Pool Re, “so when there was an IRA attack, it tended to be a cell.” With organisations such as ISIS, however, he detailed, you have directed actors which are members of ISIS but you also have “ISIS-inspired attacks,” which are carried out by individuals who have most likely never had any contact with ISIS. The question over what constitutes a terrorist attack, Enoizi stated, “is something that needs to be debated.”
The rate of change over recent years is leading to new conversations about the insurance cover required for terrorist attacks. In 2019, Pool Re launched a comprehensive guide to terrorism insurance with BIBA in collaboration with numerous government departments and industry networks (including NMU) which was tailored to support brokers’ understanding of this risk class.
Enoizi stated he believes it is Pool Re’s responsibility to educate people on this subject and the partnership with BIBA was important as this community is ultimately the distribution channel that is going to educate customers on the necessity of buying terrorism insurance.
In the 2019 report, BIBA executive director Graeme Trudgill detailed the shocking statistic that less than 3% of SMEs take up any terrorism cover at all. This, Enoizi said, is due to a variety of reasons including that many small businesses do not realise they do not have coverage and are not holding any conversations with their broker about terrorism insurance. This is why guides like that released by Pool Re and BIBA are so essential in providing education on this subject, he said.
Another factor that many businesses are not aware of is that, even if they are not the target themselves, they can still be put out of business by being unable to trade due to being caught up in a police cordon or a blast zone, Enoizi said.
In 2017, NMU updated its own policy wording to include terror attacks which do not result in catastrophic property losses but still have significant financial implications. Barlow stated that the timely release of this enhanced cover was positively received by brokers who wanted to ensure the products they recommended cover non-damage business interruption exposure.
This led, Barlow stated: “to a notable increase in terrorism cover being purchased for businesses in the retail, entertainment and hospitality sectors.”
A core consideration when it comes to SMEs and terrorism cover, said Enoizi, is that the economic burden of terrorism cover may deter small businesses from buying this cover.
“One of the things we’ve been doing,” he said, “is to try and not only drive [awareness] but also the price of the insurance, to make it an affordable cover, and almost a no-brainer purchase.”
Speaking on this subject, Barlow said: “Times have moved on from being able to place terrorism on a pricing decision alone, although many still fall into this trap. The risks and exposures should be addressed and understood between the client and the broker.”
Improvement, Barlow said, is always needed in response to the evolving threat from terrorist attacks. Looking to the future, he said NMU intends to continue to review its product offering to make sure it remains relevant and responds to the evolving threat and concerns from brokers and clients alike.