The change applies to Aviva's commercial combined, office and surgery, property owners, shop and salon, and computers products, with contractors combined to follow. It covers risks in Great Britain where property damage is selected and the combined property damage and business interruption sum insured is below £10 million. Flood Re eligibility is retained across all in-scope properties. Existing policyholders will receive the cover at their next renewal.
The protection gap traces to a specific historical event. Terrorism exclusions became standard in UK commercial property insurance after the 1992 IRA attack on the Baltic Exchange in the City of London, after which insurers moved terrorism from a standard inclusion to an optional add-on. Pool Re was established in 1993 as the government-backed reinsurer of last resort for terrorism risk, and the opt-out default has persisted since.
The result is that only 4% of UK SMEs carry dedicated terrorism insurance, according to a Federation of Small Businesses survey cited by Pool Re - despite SMEs accounting for 99% of the UK's business population. Many carry a significant misconception in the other direction: Pool Re has noted that a proportion of those without terrorism cover believe it is already included in their standard property policy when it is not.
The risk environment in which that gap sits has changed materially. Marsh's 2026 Global Terrorism Risk Insurance Report found that the nature of terrorism has shifted fundamentally - from hierarchical, property-focused attacks to dispersed networks using a wider mix of tactics including political violence, cyberattacks, and biological and chemical threats. A separate Marsh Political Risk Report for 2026 found that the number of conflicts worldwide has doubled since 2005. The US-Iran military conflict, which began in February, has further elevated geopolitical risk globally and increased the frequency of terrorism and political violence underwriting conversations in the UK market.
Pool Re's SME Incentive Scheme, effective April 1, 2026 and designed in consultation with members and HM Treasury, offers reinsurance cost discounts to member insurers that embed terrorism cover as a non-removable standard component across their SME property portfolios. Tom Clementi, Pool Re's chief executive, has said the discounts available outside central London run to up to 90%, making it possible for participating insurers to offer the cover at negligible additional cost to the policyholder - or in some cases at no additional cost at all. The scheme does not apply to central London.
The non-removable condition is a structural feature of the scheme, not a commercial choice by Aviva. Participating insurers must embed the cover as a permanent standard component to qualify for the reinsurance discount. That condition is what makes the economics work: Pool Re's whole-portfolio reinsurance pricing, introduced when it modernised its treaty framework last year, creates the pricing flexibility that enables the discount in the first place.
Clementi has described the scheme as giving members "an additional incentive to offer terrorism cover as standard, as was the case prior to the formation of Pool Re in 1993" - a framing that positions the current exclusion-by-default position as a historical anomaly rather than an enduring underwriting choice about SME risk.
For brokers with Aviva SME clients on the affected products, the change has three immediate consequences worth understanding before renewals arrive.
The first is that terrorism cover will appear on these policies at renewal without a separate buy-back conversation. Clients who currently lack terrorism cover and have policies in scope will receive it automatically.
The second is that the cost is absorbed into the overall premium rather than shown as a separate line item. Brokers should confirm with Aviva what, if any, premium movement applies and be prepared to explain the change to clients who notice a difference.
The third is that the cover cannot be removed. Brokers cannot offer clients on these products the option to exclude terrorism in exchange for a lower premium - the non-removable condition is a requirement of Pool Re's scheme, and it applies to all participating insurers equally.
For brokers with SME clients in central London - where the Pool Re scheme's reinsurance discounts do not apply - the picture is unchanged for now. The economics that make standard inclusion viable outside central London do not currently exist inside it, and no timetable for extending the scheme to that geography has been confirmed.
Pool Re has said the scheme is voluntary for member insurers and that it expects other members to follow Aviva in the coming months. If they do, the current position - terrorism excluded by default across most SME commercial property cover - will shift progressively toward terrorism included by default, reversing a market structure that has been in place since the aftermath of the Baltic Exchange bombing more than three decades ago.
