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Terrorism reinsurance coverage extended beyond property damage

The UK government has introduced new legislation which will enable the government-backed terrorism reinsurer to extend its business interruption cover beyond property damage.11 Jun 2018

As part of the Counter-Terrorism and Border Security Bill 2018, introduced to parliament on 6 June, the government will amend laws brought in to ensure businesses whose property was damaged in terrorist attacks are covered by insurance.

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.

In an amendment to the 1993 legislation (2 page / 215KB PDF), Pool Re will now cover business interruption losses. The amendment is forward-looking rather than retrospective and businesses affected by the previous gap in the legislation will not be compensated.

“This is a very welcome development for UK businesses,” said insurance law expert Nick Bradley of Pinsent Masons, the law firm behind Out-Law.com.

“The Westminster and London Bridge terror attacks exposed a gap in the available insurance cover for local businesses who suffered loss as a result of the impact on their trade in the aftermath of these atrocities. The government, working with Pool Re, has acted promptly and smartly to fix the gap,” Bradley said.

In May Pool Re noted that Salisbury businesses forced to close as a result of a nerve agent attack on Russians Sergei and Yulia Skripal would not be covered for their losses.

Pool Re has been able to cover material damage and direct business interruption caused by acts of terrorism using a cyber trigger since 1 April this year.

The Counter-Terrorism and Border Security Bill is designed to ensure the UK’s counter-terrorism legislation is “fit for the digital age” and includes a number of measures aimed at making sure the punishment fits the crime, preventing re-offending, and hardening the UK’s defences against hostile state activity.