Insurance industry witnesses ‘large drop in appetite for terrorism cover’

The “terrorism threat level in the UK is going to rise” as the current conflict in Afghanistan continues and Al-Qaeda, alongside other Islamist extremist groups, fights to freely operate in the country once again, according to Alan Brett, product development manager at MGA Inperio.

There has been, however, a “large drop in appetite for terrorism cover” among businesses, meaning that companies which were once policyholders “may not have any cover in place at all now”, said Sarah Joiner, head of terrorism insurance at MGA Burns and Wilcox.

To provide perspective on the current risk of terrorism in the UK, the Counter Terrorism Policing network reported in March 2021 that three terror attacks were prevented in the UK during the Covid-19 pandemic, including one right wing and two Islamist terror plots.

Scotland Yard’s counter terrorism chief commander Richard Smith also confirmed that the security services are actively working on 800 different leads and investigations into possible deadly terrorism plots in the UK at the time of writing.

Despite this risk, less than 15% of small and medium-sized enterprises (SME) are estimated to have terrorism insurance, according to the Pool Re website, which analysed UK SMEs in June 2019.

Speaking exclusively to Insurance Times, Joiner said this “just goes to show the threat hasn’t gone away”. She therefore believes that “brokers play a critical role in educating their clients about the risk which terrorism poses to their business, because a lot of businesses don’t understand or are quite naïve about [the threat]”.

Low penetration

As well as “companies just burying their heads in the sand”, Joiner explained that the reason behind the lack of terrorism cover take up is two-fold. Firstly, Covid hit.

She said: “Many businesses declined to either renew their cover which they already had in place or take out any new cover because they felt there was little or no threat to their business because they weren’t trading.

“Secondly, businesses that survived the pandemic are being hit with huge increases in their commercial combined premiums, which is more likely the reason we’re seeing a massive fall in the risk appetite - because of this, they’re choosing not to take out terrorism cover as a way of easing the financial impact.

“Some said they would consider taking out cover once lockdown restrictions are lifted, but we’ve not seen a big rush for people to then go out and buy it.”

But how has terrorism evolved and why should businesses care about taking out cover?

In addition to the current conflict in Afghanistan, which “doesn’t bode well for the terrorism threat here in the UK”, Brett explained that “both online radicalisation and terrorism methodology means that events can happen anywhere around the country”.

He continued: “When you speak to the layman about what terrorism is, people think about Islamic fundamentalism, potentially dissident Irish republicanism, but we’ve seen over the last 10 to 15 years the explosion of extreme views and ideologies because of social media.

“Terrorist methodology is now not about property damage – it’s more around creating fear and casualties.

“We have more and more debate and questions both with our broker partners and our capacity providers about those types of lone operators with extremist views that are being radicalised, potentially at home online, and how do we respond to that because it’s quite concerning.”

‘Knock-on’ business impacts

According to Brett, contemporary terrorist strikes are low sophistication attacks - such as vehicle weapon attacks, knife attacks and shootings – which are usually centred on places where people congregate. An example of this is the London Bridge terror attack, where eight people were killed on 3 June 2017 before the attackers moved on to launch a knife attack at Borough Market.

Attacks of this nature “potentially will have the knock-on impact of quite a substantial amount of disruption for both the businesses [directly where attacks occur] and that local area”, Brett added.

A reason for this is that businesses “are pedestrianising streets and making use of pavements where they didn’t have seating before and not a lot of thought has probably gone into the security around those areas that they’re utilising to trade outside of their premises”, Joiner explained.

To curb the level of terrorism risk here, the UK government has consulted on plans to introduce a new ‘protect duty’ law, which will impose a greater responsibility on business owners in the retail and hospitality sector. The consultation ran between February and July 2021.

If approved, this law will require retail and hospitality firms to do more to understand and mitigate the threat of terrorism to their businesses – especially for those which operate in accessible spaces, such as outdoor seating.

This works “hand in glove” with Martyn’s Law, said Brett. “I think the sooner they are enacted in law, the better - for both the public and insurance market,” he added.

Martyn’s Law is a new anti-terrorism legislation that was created following a campaign by Figen Murray. Murray is the mother of Martyn Hett, who died in the Manchester Arena bombing in 2017.

Joiner said: “There may be an opportunity here for the industry to get involved and offer guidance to businesses to better prepare themselves”.

Expanding support and cover

While non-damage denial of access cover and loss of attraction cover can help reduce the financial impact of terrorism on businesses, Inperio is also considering the mental health impact on victims following an attack.

In August 2021, 20-year-old Eve Aston, who attended the 2017 Manchester Arena concert, was found dead at home after experiencing post-traumatic stress and depression following the attack, reported The Guardian.

Inperio chief executive Simon Lovat said: “Not only have we more than doubled the size of our facility to support larger, more complex risks, [but] we have also taken the opportunity to improve the underlying cover, including providing policyholder support options, such as post trauma counselling in the event of a terrorist attack.”

Outlining the reasons behind Inperio’s counselling option, Brett explained that the responsibility of the insurance industry is “not just about the financial impact – it’s about how you can support those individuals involved post-event from a trauma”.

Joiner, however, disagreed and stated that “the terrorism insurance market is there to provide financial compensation to clients following an attack, to personally help businesses get back on their feet”.

Regarding counselling, “I’d suggest that it would be the responsibility of the government to make available emotional support for victims of terrorism as the impact is [more wide-reaching] than just the businesses affected”, she added.

On a positive note, following a “torrid time in respect of public relations following the prevention of access debacle with business interruption”, Brett said that as a result “brokers are very conscious of ensuring that they are explaining the risk and giving the client choice”.

This is a “fundamental positive for the industry because clients are now being able to consider not just whether they want to purchase terrorism insurance, but consider it more holistically around what is the terrorist threat to them, what does it mean to their business [and] what are the choices available in the market - I think that’s really important”.

To help brokers as well as hopefully boost appetite for cover, Burns and Wilcox offers training to its brokers to explain the products on offer.

Joiner added that she will also “happily go into a broker’s office and speak to all of their account executives about terrorism, the industry – how it’s evolved, the different threats that there are, [and] the different types of industries that are at risk”.