Terrorism insurance is an insurance cover that property owners purchase in the event of terrorist activities which might cause losses and liabilities. Predicting the potential losses and liabilities due to the terrorist activity and then arriving at a viable premium for the coverage is a very difficult and tricky task. Therefore most insurance companies shy away from offering such a product, unless the government provides some guarantee endorsement to such a policy.
Following a series of terrorism incidents in London and in other parts of England which were largely connected with the troubles in Northern Ireland, insurance companies in the UK decoupled terrorism insurance from the commercial insurance policies, though home insurance policies have not changed. This has been effective since January 1993. Insurance companies in the UK became sensitive to the fact that there were difficulties in providing cover for commercial properties mainly because of the huge potential cost of losses and also the absence of a method to calculate future loss. But the withdrawal of insurance cover for commercial property would have negatively impacted the country’s economy. As a result of this the government and the insurance companies set up the Pool Reinsurance Company Ltd (Pool Re), which is basically funded by premiums paid by policy holders. The government guarantees that the fund though any support from the government must be repaid from premium collected in the future.
Almost types of commercial property can be covered by terrorism insurance under these schemes. This includes buildings, their contents, site property, construction project and plant and machinery. In addition to this, business interruption losses can also be covered. This scheme does not extend to property already covered under marine, aviation or motor polices nor does it cover property on licensed nuclear sites. The Pool Re scheme is only valid for losses incurred from damage to commercial property it does not cover life or personal injury. It does not also protect private property. However, it covers residential property which has been insured by a corporate, such as a block of apartments which is owned by a real estate company.
Only properties which are located in England, Scotland or Wales are eligible for the scheme. Northern Ireland, the Isle of Man or the Channel Islands are not covered by this scheme. Please remember that the property must be already insured under a general commercial policy which is provided by a Pool Re member insurance provider. It must cover the usual fire and explosion damage. Insurance companies which are members of Pool Re do not provide just terrorism insurance. You have to insurance your entire property portfolio for terrorism. You cannot extend your policy to include terrorism insurance and then limit it to a particular property. In light of the recent terrorist acts in the country and the mounting tension surrounding an individual’s safety during such acts, terrorism insurance is rapidly gaining an important place in insurance policies.