Terrorism Insurance Review

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Terrorism attacks are the most devastating and expensive of events for the providers of terrorism insurance and can represent the most disruptive of events for insurance buyers. Because of the substantial losses that could be suffered following a terrorism event, some insurers and reinsurers are reluctant to offer insurance on terms and conditions that are attractive to the buyers of business insurance.

In order to overcome these difficulties, many governments have introduced state-funded terrorism insurance and reinsurance facilities that may be referred to as terrorism schemes, funds or pools. This report considers some of the features of the most important terrorism schemes in existence across the world. The various terms and conditions and methods of operation of the different schemes are outlined in this report.

Although terrorism schemes have been developed in a number of countries, an extensive commercial terrorism insurance market still exists. This commercial market is particularly important where a multinational organisation wishes to purchase a global terrorism programme that will often act on a DIC/DIL basis with locally purchased cover. Purchasing a global terrorism insurance policy is invariably complex and the advice of an insurance specialist and/or insurance broker will normally be required.

Terrorism insurance schemes have become established in a large number of countries and they were often formed in response to the events of September 11, 2001. The features of the main terrorism insurance schemes are outlined in Appendix A and brief information on some other terrorism schemes is provided in Appendix B. The information in Appendix A and Appendix B is for general guidance only and insurance buyers should obtain appropriate professional advice when designing and implementing global and local terrorism insurance arrangements.

The key factors that should be considered when arranging the purchase of terrorism insurance cover are as follows:

• Each scheme will have different terms and conditions with varying definitions of terrorism and different exclusions that apply
• Almost all the state (or country) terrorism schemes offer coverage for acts of terrorism within the territories of that country only
• There is a strong commercial market for terrorism insurance both for domestic terrorism cover and for global terrorism insurance programmes
• Many companies will wish to buy a global terrorism insurance policy to supplement or replace involvement in state terrorism schemes
• The design of a global terrorism insurance policy is complex and it is likely that specialist professional advice will be required.