By Steve Coates (Chief Underwriting Officer) & Ed Butler (Head of Risk Analysis)
Over 60 brokers attended our fringe session at the BIBA conference in Manchester. In light of recent events in Paris and Brussels, terrorism is a top-of-the-mind issue. We explored why terrorism is a dynamic risk and examined how brokers could help their clients and add value.
Risk awareness is key
Brokers were keen to find out what cover is available and why their clients need it. Strategically we wanted to make it clear that threat and risk awareness is a key element of our approach and we have invested in a new risk analysis function. This underpins what Pool Re offers.
The broader picture – including new threats
Despite the changing face of terrorism, the insurance and reinsurance markets remain unable, both in UK and most other key G20 countries, to provide sufficient capacity to enable terrorism cover to be offered in the absence of some form of Government assistance.
Brokers were made aware of the current threat in Europe and the increasing cost of terrorism globally. Al Qaeda has not disappeared but most observers would agree that Daesh (ISIL) now constitutes the main threat to western democracies. As a result of this shift the dangers are more complex, cumulative and diffuse.
This complexity is compounded because their strategy incorporates the Middle East, North Africa, the sub-Sahara, Pakistan and Afghanistan; as well as Europe and USA.
In addition, a range of tactics are being utilised; from marauding firearms attacks to 7/7 type attacks on key establishments as demonstrated by the attack on Brussels Airport. The economic cost of the Paris attacks alone is estimated to be in excess of 7bn euros with early estimates of Brussels possibly exceeding half of that.
More worryingly, the Chemical, Biological, Radiological and Nuclear (CBRN) threat is real and not to be dismissed – including the possibility of a dirty bomb attack in UK. Daesh has declared its intent to carry out this type of attack in Europe and is becoming more expert in manufacturing these devices within Syria and Iraq. The concern is that materials such as Caesium 137 and Cobalt 60, as used in medical equipment in European hospitals, may fall into terrorist hands.
The main emerging threat is cyber terrorism which is why Pool Re is working with the Centre for Risk Studies, Cambridge Judge Business School to scope and understand the risks to establish whether and how the scheme might respond in the future.
What can Pool Re offer?
Pool Re cover is integrated back-to-back with property cover, usually in the same transaction. This means there should be little or no gap between the two covers. A gap is harder to establish when terrorism cover is bought separately.
The scheme is robust and can now pay a claim in excess of £8bn without drawing on the HM Treasury guarantee. This would cover all but the most exceptional conventional events. Also, non-conventional (CBRN) events could result in losses well in excess of this.
Uniquely Pool Re backed terrorism policies cover CBRN to the full insured value. This is an important reason to consider cover, as dealing with the aftermath might be easier if there is an insurer backed by Pool Re to handle the claim.
3 ways brokers can add value
The session concluded by examining how brokers can add value for clients concerned about the risk of terrorism. The advice focused on:
1. Integrating the peril within the broader risk framework.
2. Assessing client exposure from third parties such as suppliers and utilities.
3. Framing cover so that it can respond to catastrophic events – which is more likely to be experienced on terrorism than many other perils.