How the Scheme Works

Most insurers providing commercial property and consequential loss (more commonly 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 here. 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, 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 this cover and sustains losses as a result of damage from an act of terrorism should contact their insurer who will arrange for the claim to be considered under the usual procedures.

Pool Re has arrangements with all its members to reimburse them the cost of claims they pay under the terrorism cover they provide, subject to a loss retention which they must pay themselves. Insurers pay premium to Pool Re for this cover. The retention varies between insurers depending upon the size of their terrorism insurance portfolio.

If losses ever became so large as to exhaust its reserves, Pool Re would draw funds from the UK government to meet its obligations. Pool Re, in turn, pays a premium to government for this cover and would be required to repay any funds drawn down in this way from its future income.

Risks Eligible for Terrorism Cover

It is possible to cover most types of commercial property under the scheme: buildings, their contents, site property, construction projects and plant and machinery. It is 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 and it does not cover property on licensed nuclear sites, for which separate arrangements are in place.

Because the Pool Re arrangements are concerned only with losses which follow from damage to commercial property, it does not extend to life or personal injury. Nor does the scheme protect private property, although it can 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 covering conventional fire and explosion damage. 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 to extend their policy to include terrorism cover, they must cover all the property they insure. They cannot use the scheme to insure only part of their property portfolio for terrorism.

Cover Provided

The terrorism cover provided by Pool Re members must be issued as part of a policy which covers losses resulting from damage to commercial property, as that is the trigger for Pool Re terrorism cover. Terms and conditions that apply to the general cover will also apply to the terrorism cover. Equally, monetary limits that appear in the general policy also apply to the terrorism cover. For example, if the general commercial property policy states that losses below a certain amount cannot be recovered from the insurer, then the same deductible applies to the terrorism cover.

The only exclusions applying to the terrorism cover are in respect of:

  • war and related risks;
  • and damage caused by virus, hacking and similar actions.

There is no exclusion for chemical, biological, radiological or nuclear contamination and the terrorism cover provided by the Pool Re member is able, subject to the terms of the policy, to respond in situations in which damage has been caused by such means.

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 policy issued by the insurer is often written in much wider terms. Incidents that do not fall within the definition of an act of terrorism under the Pool Re scheme may nevertheless be covered under the relevant insurance policy. For example, most property policies routinely cover malicious damage.

How Terrorism Cover is Arranged

Insurance for terrorism damage under the scheme is always arranged through an insurer or insurance intermediary and never directly with Pool Re. 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. No separate terrorism policy is required; the existing policy will be extended to cover terrorism losses.

The Price of Terrorism Insurance

Insurers in the Pool Re 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.