Many terrorism insurance policies are triggered when there is physical damage to a property. As a result, commercial insurance buyers may find that they are unprotected against business interruption losses if there is minimal or no damage to their properties after a terrorist event, according to a report published by Pool Re, the terrorism reinsurance pool for the UK mainland.
The coverage gap issue is particularly acute for small and medium-sized enterprises (SMEs), said the report titled “Terrorism Threat & Mitigation Report January – July 2017.”
On the other hand, larger retail and hospitality businesses “are better placed to absorb losses through resilience of scale,” it added.
The solution to such coverage gaps for SMEs? Pool Re says one possible model would see non-damage business interruption insurance resulting from terrorism offered to the market, and covered indirectly by the commercial market through reinsurance of Pool Re.
“Such cover would be inexpensive, widely purchased, and with specific discounted rates for SMEs,” said Julian Enoizi, chief executive, Pool Re, in a forward to the report.
Assessments of terrorist attacks in Europe “suggest that SMEs could be impacted for between three and nine months, either by an event or the perception of reduced security, and suffer losses ranging from 5 percent to 30 percent of their annual revenue,” he continued.
This year’s terrorist attacks in Manchester, England, and London’s Borough Market highlighted the seriousness of the coverage gap and its affect on SMEs – when an attack causes considerable business interruption, denial of access caused by police cordons, loss to the local economy and a reduction in visitor numbers, the report indicated.
Pool Re noted that the SME sector, which traditionally does not take out terrorism cover, was hit hard by the Borough Market attack in June. The minimum losses for businesses in the market were £1.4 million ($1.9 million) at the “absolute minimum,” said the report, quoting Darren Henaghan, managing director, Borough Market.
“Terrorism cover is available to all businesses; the challenge is to make it affordable, accessible, adequate, simple to understand and up to date with the current threat. SMEs also need to be aware that the cover is available to them in the first place,” the report added.
“Despite the high number of terrorist incidents across Europe over the last four years and more recently in the UK, there is still very little take-up of terrorism cover outside the major cities, especially among the SME community,” said Pool Re, estimating that less than 10 percent of this group of SMEs buy terrorism cover.
The Pool Re report analyzes recent terrorist attacks and provides a threat summary for Islamist terrorism across the globe. Key themes and emerging trends discussed in the report include:
- The threat posed by Islamist extremism is global, evolving, persistent and ideological. Daesh and al Qaeda (AQ) associates remain the key threat actors and likely targets are crowded places, national infrastructure and police and military institutions and personnel.
- Attacks are likely to continue. The methodology of them may be wide ranging and, whilst the most frequent may be unsophisticated, attacks involving home-made improvised explosive devices (IEDs) should not be discounted.
- The arrests of three women in London in April, and their suspected involvement in the commission, preparation and instigation of terrorism acts indicates that women may play a greater role in attack planning.
- The increasing sophistication of the New IRA bomb-makers and the threat to Great Britain.
- The prominence of al Qaeda in the Arabian Peninsula and the enduring AQ threat to the West, particularly against aviation.
- The influence of Islamist extremist magazines on terrorist attack methodology and the correlation between attacks and the content of online material.
“This report aims to inform, raise awareness and provide an accessible and expert resource on the evolving terrorist threat,” Enoizi said in a statement. “By supplying Pool Re’s members and by extension their clients across the UK with knowledge and insight surrounding the threat, businesses can better protect themselves, their employees and the UK as a whole.”
Source: Pool Re
*This story appeared previously in our sister publication Insurance Journal.