History of the Pool Re Scheme

Pool Reinsurance Company Limited was formed in 1993. Its formation was brought about by conditions in the insurance market following a series of terrorism incidents in the early 1990’s in London and elsewhere in England, related to the situation in Northern Ireland at that time. The cost of losses arising from these incidents caused insurers and reinsurers to focus on the difficulties of providing terrorism cover for commercial properties, in particular the high potential cost of losses and the lack of any reliable method of estimating what the future loss experience might be. Insurers were dependent upon reinsurers for financial protection should very large claims occur and, accordingly, both insurers and reinsurers decided they could no longer provide terrorism cover using methods traditionally employed in the market. It became necessary to devise a mechanism through which to continue to make terrorism cover available to buyers of commercial property and business interruption insurance, without leaving insurers or reinsurers open to substantial losses for which there was no reliable method of calculating accurate premiums.

Any absence of terrorism insurance carried the potential for serious adverse effect upon the UK economy, as many areas of business would have needed to adapt their activities to account for the consequences of damage caused by terrorism being uninsured.

During the latter part of 1992 it became clear that, to ensure cover was available for commercial property damaged by an act of terrorism, it was necessary for there to be joint involvement of both the insurance industry and government. Following extensive dialogue, a suitable structure emerged and the details of the Pool Re scheme were developed.

The Pool Re scheme became operational from the start of 1993 and was involved in claims arising from eleven separate terrorism incidents between 1993 and 2001, as follows:

	Date	Event	Losses incurred by Pool Re

	April 1993	Bishopsgate, City of London	£262 million
	February 1996	London Docklands	£108 million
	June 1996	Manchester City Centre	£234 million
	August 2001	Ealing, West London	£5 million
	1993 - 2001	7 other events	£2 million

Total			£611 million

Over the period of its operation the scheme has been adapted to deal with changing circumstances in the insurance market. The most significant changes occurred following the events in New York and Washington on September 11th 2001, as a result of which the insurance and reinsurance markets reconsidered the way terrorism insurance was then made available.

Since 1993 cover from the international reinsurance market available to insurers operating in the UK had been designed to dovetail specifically with the cover provided by Pool Re. Whereas Pool Re’s cover to insurers was for damage caused by acts of terrorism involving fire or explosion, insurance for damage caused which did not involve fire or explosion had continued to be provided by insurers, supported by the international reinsurance market.

After the events in the USA reinsurers were no longer in a position to continue to provide that balance of cover, so for Pool Re to maintain its restricted basis of cover would have left insurers unable to provide their customers with cover for events not involving fire or explosion. In an attempt to avoid this situation, discussions took place between representatives of the insurance industry, buyers of insurance, the UK government, Pool Re and others. In July 2002 an agreement was reached to widen cover and amend certain other essential features of the scheme, in a way which responded to the changes which had taken place and the current needs of the UK insurance market. In particular, the cover provided by members of the Pool Re scheme was extended to an “all risks” basis, and not restricted to fire or explosion as hitherto. In addition, exclusions relating to chemical, biological, radiological or nuclear attack were removed, leaving the scheme able to respond to events which include damage arising from such causes.

Since 2001 the scheme has needed to respond to one further event, the bombs detonated on various parts of the London transport system on 7 July 2005.