With James Floyd, Head of Terrorism and Political Violence at Miller

Imogen Mitchell-Webb (Partner – International Casualty, and Head of Sports) recently spoke with Jonathan Gray, Pool Re’s CUO, about the changes to the scheme and the expected impact on the terrorism insurance market.

In order to review the current state of the commercial terrorism insurance market and whether we are moving closer to achieving Pool Re’s ultimate aim of returning terrorism insurance to the commercial market, Imogen spoke with James Floyd, Head of Terrorism & Political Violence at Miller. The conversation also touches on international developments, including the potential impact of changes to the US Terrorism Risk Insurance Act (TRIA), which could significantly influence global market dynamics.

At HF we work closely with insurers, reinsurers, brokers and policyholders operating in various industry sectors to provide support in respect of disputes and litigation related to terrorism risks. For specialist advice and support, contact Imogen at Imogen.Mitchell-Webb@h-f.co.uk.

What is the commercial terrorism insurance market?

The commercial terrorism insurance market refers to the supply of terrorism insurance cover by commercial insurers in the London and international markets. Following the Provisional IRA bombing campaign in the 1990s, there was mass withdrawal from this space, which led to the introduction of Pool Re.

Over the last 30 years, however, the commercial market has developed and strengthened. Insurers who are not involved in the Pool Re scheme can offer terrorism insurance via the commercial market and Floyd reports that currently this is a multi-billion pound market, with dozens of providers, meaning capacity is plentiful.

What are the key differences between Pool Re cover and cover available on the commercial market?

Pool Re provides reinsurance coverage for terrorism risks in the UK, covering property damage and first party business interruption caused by terrorism. Pool Re’s cover has evolved over time to include a range of threats, including CBRN (chemical, biological, radiological, and nuclear) risks.

In contrast, commercial market cover tends to be more flexible and comprehensive. Policies can cover risks arising from wider perils, including active assailant attacks, cyber-attacks, strikes, riots, civil commotion and broader political violence perils amongst others.

Liability cover is also available in the commercial market for organisations at risk of being sued by third parties who have suffered losses, owing to the insured’s acts or omissions. For example, an organisation whose security processes were sub-standard, meaning a terrorist was allowed to enter their premises and detonate an explosive device, causing loss and damage to multiple third-party businesses.

It’s worth noting that Pool Re only covers incidents occurring in mainland England, Scotland or Wales. Any organisations with exposure in Northern Ireland, the Channel Islands, the Isle of Wight or any foreign countries need to find solutions in the commercial market.

Products in the commercial market can be bespoke and creative as different types of cover, limits of indemnity and geographical scopes can be accommodated.

What effect will the Pool Re changes have on the commercial market?

Floyd notes that “there has been a shake-up in the commercial market as Pool Re is making changes, and the commercial market will react to that”. He predicts that the market will monitor Pool Re pricing with a view to maintaining competitiveness if Pool Re prices do fall.

This will likely result in “some winners and some losers”, as a number of insurers will be able to improve on Pool Re pricing for similar cover, and others may struggle if the Pool Re re-rating offers significant reductions.

Are we close to achieving Pool Re’s aim of returning terrorism risks to the commercial market?

Floyd considers that the commercial market has been growing and there are new entrants who can be more flexible in their product offerings than some of the larger, established insurers. However, there’s no immediate indication that insurers and policyholders for whom the Pool Re scheme is working well, intend to switch to the commercial market.

Pool Re’s consultation aimed at re-introducing terrorism cover into standard property wordings for SME’s was also considered far-off, given the way that the terrorism market operates as a standalone market. Typically, it’s large organisations who purchase terrorism cover alongside a wide range of other covers. Brokers and insurers will deal with the terrorism element separately even if the package of insurance is ultimately streamlined into a multi-line proposal.

Are SME’s buying terrorism cover?

A key aim of Pool Re’s recent reforms is to increase uptake of terrorism cover among SMEs – currently, only about 4% of SMEs have terrorism insurance, according to Pool Re data.

There’s more work to be done to educate policyholders on the need for terrorism insurance. Floyd commented that multi-nationals are more likely to appreciate terrorism risks and be willing to find solutions in the market and invest in them. International real estate owners and construction companies are good examples, alongside critical infrastructure and sports / entertainment venues. SMEs on the other hand, are less likely to see this cover as a good investment and may also not be able to afford it, despite low barriers to entry in terms of premium spend.

Horizon scanning: Are there any other shake-ups in the market expected?

Floyd advised that Miller and the rest of the market is keeping a close eye on whether or not the Terrorism Risk Insurance Act (“TRIA”) in the US will be renewed.

This scheme was created in 2002 after the 11 September 2001 terrorist attacks, which led to over $50bn of losses and therefore mass withdrawal of insurers from the market. TRIA requires insurers to offer cover to commercial policyholders in the USA for specified terrorism events (although it’s not mandatory to purchase it). Commercial insurers are then reinsured by the US government.

At present, TRIA has been authorised until 31 December 2027, but Floyd said that since Trump began his second term as President with a notable focus on making bold decisions and cutting federal spending, there is reason to believe that his administration could seek to review the US government’s backing of the TRIA programme. That could result in withdrawal of commercial insurers from the market, triggering a fall in capacity and altering available terms and conditions. Certainly one to watch.

For further insight or support with terrorism risks, contact Imogen.Mitchell-Webb@h-f.co.uk.