Vehicle-related terrorism claims 'mutualised' by UK motor insurers

The rationale for the development came following concern about coverage for motor terrorism risks after the recent increase in terrorist activity involving vehicles.

Under the new arrangement, industry body the Motor Insurance Bureau (MIB) will handle claims stemming from the use of vehicles to injure or kill people. It will apply to incidents that occur on or after 1 January 2019. The change was voted through by UK motor insurers. Those insurers are members of MIB, which is funded through an industry levy.

Dominic Clayden, MIB chief executive, said: "Those who are innocently caught up in events where terrorists drive vehicles into people to injure and kill, can rely on MIB to pay and handle their motor related claims for these terrible events."

The move was backed by other insurance industry bodies, including the British Insurance Brokers' Association (BIBA).

Graeme Trudgill, BIBA executive director, said: “The use of a vehicle as a weapon is not what motor insurance is designed for and it would be wholly unfair not to mention unsustainable to hold a single motor insurer responsible for any subsequent compensation payments."

Currently in the UK, an insurer is not liable for qualifying claims arising from acts of terrorism either contractually under the relevant policy of insurance or under the Road Traffic Act 1988. It is however liable to handle and meet those claims under Article 75 of the Uninsured Drivers Agreement.

Article 75 requires insurers to deal with, and pay from their own funds, certain ‘uninsured’ cases subject to specific circumstances, one of which is where “the use of the vehicle is other than that permitted by the policy”.

In order for a change to Article 75 to remove this responsibility from insurers, a 75% vote in favour was required from the MIB membership. Following a 28 day ballot which closed on 19 July, more than 75% of motor insurers by voting rights agreed the change. Although the issue of whether the MIB should only be responsible for claims over and above a particular level was considered, the MIB Board ultimately decided that the exclusion should be ‘from the ground up’.

A government-backed terrorism reinsurance scheme does exist to handle other types of claims linked to acts of terrorism in the UK.

As a result of the financial losses incurred by insurers after the IRA bombings in the City of London in the early 1990s, the insurance industry set up Pool Re, a central fund to pool resources from which they could ensure cover would be available for businesses.

In 1993 the government introduced legislation which extended a guarantee to Pool Re which meant businesses would be covered even if Pool Re’s funds were exhausted. However the guarantee was limited to covering losses caused by damage to commercial property during a terrorist attack.

More recent terrorist attacks such as use of a vehicle to target pedestrians on London Bridge and the Manchester Arena bombing have targeted people instead of property and losses can be incurred in the wake of such attacks, for example when businesses within the police cordon must close during the investigation period.

The government recently set out proposed new legislation to update Pool Re to extend its coverage to business interruption losses.