Tom Clementi, CEO of Pool Re, provides Airmic News with an update on plans for 2023 at the UK’s terrorism risk mutual reinsurer, including a study of systemic cyber risk, small business resilience and proposed changes to Pool Re’s own reinsurance scheme.
I’m pleased to have the opportunity to write for Airmic about some of the changes and priorities we are focusing on at Pool Re this year. For those unfamiliar, Pool Re is the insurance industry’s mutual for reinsuring terrorism risk in Great Britain. It was established in partnership with the UK Government in 1993 following the market failure caused by the Provisional IRA’s mainland bombing campaign against financial targets and city centres.
Since 1993, Pool Re has succeeded in re-establishing a terrorism insurance market able to offer comprehensive and affordable terrorism cover, and paying claims without ever resorting to its Government guarantee.
But just like the threat it was designed to address, the effectiveness of the Pool Re partnership depends on its ability to evolve, as it has done in recent years with the introduction of new covers for cyber and non-damage business interruption, investments in risk mitigation and strategies to return risk to the private market through increased insurer retentions, the world’s largest terrorism retrocession programme and the first terrorism catastrophe bond.
Review with HM Treasury
The Review of Pool Re carried out by the Government every five years is an important part of this evolution. The most recent Review concluded in early 2022 and renewed Pool Re’s mandate to continue to return risk to the private market as a precondition of retaining HM Treasury’s uncapped loan facility. Together with our Member insurers and Government partners, we agreed an ambitious ‘Scope of Works’ programme to look at modernising Pool Re’s reinsurance scheme over the next five years to ensure that Pool Re is working optimally for all of its stakeholders.
Scheme and pricing reforms
The most important strand of this programme is our proposal to move the reinsurance scheme from a Facultative model to a Catastrophe Treaty model.
Last year, we released a Consultation inviting Members’ views on the feasibility and design of a Treaty framework which we hope will simplify the way in which the scheme operates, bring it into line with an increasingly digital marketplace and empower Members to price terrorism cover as they see fit for their policyholders.
The Consultation also invited views on the introduction of a more flexible retention structure that would allow Members to retain more ‘conventional’ terrorism risk such as bomb blasts as distinct from the less-insurable tail exposures associated with CBRN risks for which the Government’s guarantee remains critical.
The Consultation provided broad support for the proposals, and we are now focused on developing the reforms in more detail in conjunction with Members, the Government and our regulators. If approved, we are confident the changes will drive greater take-up of terrorism insurance amongst SMEs, thereby increasing the resilience of the economy, and further insulate the taxpayer from the financial consequences of terrorism attacks.
Small business resilience and Martyn’s Law
Another key focus in 2023 is our ongoing investment in risk mitigation projects with the Home Office and Police through the ‘Counter-Terrorism Alliance’. Amongst a number of initiatives planned for 2023, our consultancy division, Pool Re Solutions, will be assisting Members and their policyholders (and SMEs in particular) with awareness and education materials relating to the incoming Martyn’s Law (or Protect Duty) legislation.
When passed, this legislation, which has come about in response to the Manchester Arena bombing of May 2017, will require owners and operators of public venues to take preventative steps to ensure public safety. This is a welcome step, but will place new compliance and liability pressures on businesses, many of which will need to implement unfamiliar protective security measures and may wish to purchase greater liability insurance cover as a result.
Systemic cyber risk
Given the success and experience of the Pool Re model in sustaining and growing a commercial market for extreme terrorism risks, we have recently been working with industry bodies, including Airmic and with cyber specialists across the industry, to assess the potential for greater public-private collaboration to address catastrophic cyber risk more effectively.
Together, we are producing a study to map the cyber insurance landscape, assess protection gaps and set out a range of options from awareness initiatives to risk pooling to test with the wider market. If an industry consensus on a targeted and practical set of proposals can be reached, we will be in a constructive position to approach government for its input and, ideally, put measures in place to build preparedness and resilience ahead of any systemic cyber event in the future.