Pool Re, the UK’s government-backed terrorism reinsurer, has reported that the losses suffered by Salisbury businesses in the wake of the nerve agent attack against Sergei and Yulia Skripal have exposed an oversight in the way re/insurers cover terrorism risks.
The company’s latest Terrorism Frequency Report, which coincided with the 25th anniversary of the Pool Re’s foundation, noted that affected business owners are unlikely to be able to claim these business interruption (BI) losses on their existing insurance policies.
BI policies have traditionally been triggered by damage events like fire or storm, but have in many cases now been extended to cover other causes of interruption like closure of an area due to a crime scene or infectious disease.
However, BI policies have deliberately excluded risks related to war and the use of Chemical, Biological, Radiological, Nuclear (CBRN) due to the sheer magnitude of potential losses, which would be more appropriately funded by other means, such as Government.
The Salisbury incident, whilst unlikely to be declared a terrorist attack itself, shows that CBRN attacks can be localised and deployed by criminal or terrorist actors, and can have far-reaching financial consequences for local business owners and residents.
Julian Enoizi, Chief Executive Officer (CEO) of Pool Re, said: “The losses being suffered by businesses in Salisbury are highly unusual. They have highlighted the macro consequences of a micro CBRN event. This should prompt debate within our industry.
“Consideration should be given to whether the perceived wisdom around certain perils needs to be reassessed and whether now is the time to address other risks, for which underwriters also do not provide cover.”
Although CBRN coverage is available within terrorism policies backed by Pool Re, traditional commercial property and business interruption policies do not offer such cover.
Pool Re’s report, which assessed terrorism trends in advanced markets from 1990 to 2016 through the lens of reinsurance, also found that the nature of terrorist attacks have changed more generally.
It observed that, during the 1990s, when the IRA represented the most notable threat to UK terrorism reinsurers, attacks were designed to maximise financial and economic losses, whereas modern attacks focus on maximising loss of life.
Thus, while the annual average number of terrorist attacks in the 2010s is 63% lower than in the 1990s, the yearly average deaths are 30% higher.
Similarly, the proportion of attacks using improvised explosive devices (IEDs) was found to have fallen by 20%, while deaths from firearms rose 18%, and vehicles now account for 18% of terror-related fatalities.
The study also considered the growth of domestic, extreme right-wing (XRT) terrorist attacks, and their implications for the re/insurance market and counter-terror police.
Enoizi added: “We have sought to continuously evolve our proposition and to learn from our experience of terrorism risk in an effort to develop analytical and actuarial tools.
“By assessing the libraries of data available, in collaboration with our academic partners, from a (re)insurance standpoint and then distilling this information we aim to provide a resource which will enable the market to retain ever more of this risk.”
