We provide terrorism insurance to insurers. This enables insurers to transfer their risk to us, increasing their ability to withstand the financial burden of a large or unusual terrorist event.
We call this our scheme
How does our Scheme work?
We are the insurance industry’s mutual for insuring terrorism risk in Great Britain. We were established in 1993 by the UK Government in response to the untenable losses and uncertainty caused by the Provisional IRA’s devastating bombings in financial centres in London and Manchester during The Troubles. As a result of their attacks, insurance cover was withdrawn for commercial property, meaning that the economy, industry, and the taxpayer were highly vulnerable to future attacks.
We are unusual because HM Government have provided unlimited backing to our scheme through a loan facility, reflected in an agreement between HMT and ourselves, known as the Retrocession Agreement. This governs the operation of the scheme and enables us to correct market failure, protect the UK economy, and safeguard society and livelihoods from acts of terrorism.
Financial Safety Net
We offer a financial safety net for around £2.2 trillion of assets and businesses of all sizes, from shopping centres and local traders to airports and power grids, across sectors of the economy such as real estate, retail, transport, construction and energy.
Our purpose is in our name
We are a pool; the custodians of an emergency fund we have built over the past few decades by investing insurers’ contributions in preparation for the unthinkable. This buffer, which currently stands at £6.5 billion, has allowed us to pay claims in excess of £1.25 billion (when adjusted for inflation) in relation to 17 terrorist events since our foundation without ever needing to call upon the unlimited HM Treasury loan facility which underpins our Scheme.
Our activities are funded by premiums received from our Member insurers. Profit is not our objective; any surplus is invested via prudently managed investment funds and the use of other financial tools such as commercial retrocession and Insurance Linked Securities to enable us to meet future claims.
We are recognised by our public partners as the ‘global leader in the sector… a world-leading partnership between Government and the insurance sector’, and in 2019 were recognised by our commercial peers with numerous prestigious awards, including ‘Risk Carrier of the Year’, ‘Underwriting Initiative of the Year’ and ‘Industry Achiever of the Year’ for our CEO, Julian Enoizi.
Definition of an Act of Terrorism
The scheme uses the definition of an Act of Terrorism contained in the Reinsurance (Acts of Terrorism) Act 1993
…acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto.
It should be noted that, whilst an event has to fall within this definition for an insurer to make recovery from Pool Re, the Member insurer’s policy wording may define an Act of Terrorism differently.
Insurance for terrorism damage under the scheme is always arranged through an insurer and never directly with us. The insurance may be restricted to physical damage to property or it may include business interruption losses resulting from property damage caused by an Act of Terrorism.
As most commercial property insurers are Members of Pool Re, any policyholder is very likely to find that their existing insurer can provide terrorism cover through the scheme. They simply need to contact their insurer or insurance adviser. Terrorism cover via Pool Re can only be provided alongside a property policy and not on a standalone basis.
Insurers in the scheme are free to decide the price of the terrorism cover they offer their customers. As a result, different insurers may give different quotes. Although it is open to each insurer to determine the price it charges, the most important factors tend to be the total value of the property, its location and whether the policy is to cover property damage only, or also business interruption losses.
Most insurers providing commercial property and consequential loss (usually referred to as business interruption) insurance in the UK are Members of Pool Re and have agreed to offer terrorism cover, as defined under the scheme, to any client or prospective client who requests it as part of the relevant commercial policy they issue.
The list of participating insurers is shown on our Members page. All the most significant providers of commercial property insurance in the UK take part, including many overseas companies and Lloyd’s syndicates.
On request by a policyholder, and assuming the eligibility criteria is met, an insurer participating in the Pool Re scheme will quote a premium for the inclusion of terrorism cover. If accepted, it will then become part of their commercial property (or other relevant) policy. Alternatively, the insurer may simply include terrorism cover within its standard policy without the need for separate consideration by the insured. The cover provided is for losses resulting from damage to property caused by an act or acts of terrorism. If the commercial insurance policy also includes business interruption, then terrorism cover can be provided for this risk. This cover may be provided as part of a commercial property policy or on a separate policy.
Any policyholder which has taken out this cover and sustains losses as a result of damage from an Act of Terrorism should contact their broker or insurer who will arrange for the claim to be considered under the usual procedures.
We have arrangements with all our Members to reimburse them the cost of claims they pay under the terrorism cover they provide, subject to a loss retention which the insurer must pay themselves. Insurers pay premium to us for this cover. The retention varies between insurers depending on the size of their terrorism insurance portfolio.
If losses ever became so large as to exhaust its reserves, we would draw funds from the UK Government to meet our obligations. We, in turn, pay a premium to the Government for this cover and would be required to repay any funds drawn down in this way from any future income.
It’s possible to cover most types of commercial property under the scheme: buildings, their contents, site property, construction projects and plant and machinery. It’s also possible to cover business interruption losses arising from damage to such property. However, the scheme does not cover property insured under marine, aviation or motor policies, nor does it cover, Nuclear Reactors or Nuclear Installations for which separate arrangements are in place.
The scheme centres on losses which follow from damage to commercial property, not extending to life or personal injury. Nor does the scheme protect private property, although it does cover residential property insured by a firm (such as a block of flats owned by a property company).
To be eligible for the scheme, the property must be located in England, Scotland or Wales; it does not apply to property in Northern Ireland, the Isle of Man or the Channel Islands. The property must normally be insured under a general commercial policy issued by a Pool Re Member that covers Fire and/or Explosion (as a minimum). Members do not provide terrorism cover under the scheme on a ‘stand-alone’ basis, i.e. in a policy covering terrorism only.
If a policyholder decides they wish to insure for Terrorism Cover, they must insure all eligible property for Terrorism Cover with a Member insurer, whether the property is insured under a single policy, or across many policies, and whether it is insured with one insurer, or across many insurers. They cannot use the scheme to insure only part of their property portfolio for terrorism. This is called the Adverse Selection or Cede All rule.