Dealing with growing risks

It is said that the vast majority of Londoners have handled themselves with sang froid since the terrorist attacks of 7 July. Given that most cannot afford to give up work or avoid the tube, there is little else they can do.

But the publicity generated by the bombings, huge police presence and increased emphasis on security may well have prompted many firms to consider buying cover against terrorism for the first time.

Martin Singleton, senior property underwriter for Norwich Union, says there has been an increase in inquiries from brokers across the country about cover. "The terrorists themselves came from outside London, and many people remember the IRA bomb in Manchester. Firms want to know more about the risks they face and are relying on brokers for information."

He says to meet the need Norwich Union is to place additional guidance on terrorism cover and risk management advice on its e-broking and risk services websites. It has already set up a terrorism cover calculator for brokers.

"It is not just about buying more cover - many smaller clients in particular may want to look at basic housekeeping issues too, such as how they manage access and having a business continuity plan in place," Singleton says.

He explains it is commonly held that the government-backed Pool Re scheme is working well, with most finding premiums within reach. But he adds that some clients may want to look at extensions to its standard property and business interruption cover.

"A broker will look at potential problems specific to the client. For a restaurant or theatre they might want to look at loss of attraction insurance as an extension. We also provide protection against bomb hoaxes - if the police rope off an area, takings can cease."

Pool Re is no longer a monopoly, however, and clients may also want advice on whether they should buy cover instead from the London market. One of the largest providers is Ascot, which has been placing increased emphasis on the SME sector with its online Ascot Terrorism Automatic Quoting System (Ataq).

Ascot's business development manager Torquil McLusky says: "Ataq allows us to underwrite each risk individually, and not lump a client in with a pool of varied risks."

While the cover is aimed mainly at smaller firms, there is capacity to provide up to £15m of standalone cover per policy. Cover can also be tailored to specific client needs.

McLusky's colleague, terrorism underwriter Julian Barker, says there has not been a big upsurge in demand following the attacks in London, rather a general trend for smaller firms to buy cover - and he feels cover is likely to remain affordable.

"Even though the attacks were serious, there was not extensive property damage. We have returned to business as usual and the aim is to keep cover within reach."

No panic-buying
Opening the market up has increased competition, although some argue that the fact nuclear, chemical and biological risks are excluded outside of Pool Re is a concern. But, according to Barker: "The [Lloyd's] T3 wordings that we use have been proven following 9/11. They are flexible and have a strong appeal for businesses with a global presence."

John Haggar, senior property broker for Marsh, comments: "There certainly is no panic- buying and the threat from Al Qaeda is nothing new. The one area where I have seen more requests for information is in whether to buy employers' liability cover connected to terrorism, something Pool Re does not include."

He adds that brokers can find solutions for most clients through offering terrorism 'wrap' cover, which picks up any shortfalls and covers the areas that fall outside of the scope of a general property policy and Pool Re.

National brokers are looking at terror cover within a global context. A key issue is the US Terrorism Risk Insurance Act of 2002 (Tria). It has yet to be decided whether this will be extended in its present form since the US Treasury believes it is stifling further innovation within the industry.

But risk managers, insurers and brokers support an extension, saying the private market lacks the capacity to meet the demand of terrorism cover without the TRIA backstop.

A decision is expected by the end of the year.

Worldwide, terrorist activity is making the world a riskier place in which to do business. Aon's 2005 terrorism risk map found 31 countries with higher terrorism risk ratings than last year, almost half (48%) of which are in Western Europe.

Among these the Netherlands, Germany, Belgium and Denmark have all been marked as higher risk because of increased Islamic extremist activity.

It also showed that participation in the US-led Iraq coalition has increased terrorism risk in countries such as Australia, Poland and Estonia, showing London is certainly not alone in facing this problem. IT

Terror cover in Europe
Austria: the Austrian Insurance Association developed Terrorpool Austria for non-compulsory reinsurance of property damage, applying only to risk locations in Austria.

France: terrorism exclusions for assets in France are not allowed under French law. The Gareat reinsurance pool provides reinsurance for member direct writing insurers and both membership and reinsurance are compulsory for local insurers.

Germany: no terrorism exclusion for commercial property/BI up to a total of €25m. Above this, terrorism is excluded. For larger risks, cover available via Extremus Versicherungs.

The Netherlands: risks usually reinsured with the Dutch Terrorism Risk Reinsurance Company. Maximum sum payable €1bn across all reinsured losses.

Spain: cover for properties in Spain not obligatory (but available from state-owned Consorcio de Compensacion de Seguros).