The business impact of terrorism
This weekend saw another appalling attack on the people of Britain. Extremist groups continue their guerrilla tactics and can cause death and disruption without warning.
Though it feels wrong to be writing this at this time, it’s important to recognise the impact these kinds of attacks can have on businesses. Even though they may not be the intended targets, their proximity to an incident can cause severe disruption, financial loss and employee problems.
An attack that isn’t actually on the premises but nearby can result in property damage, business interruption, legal liabilities, denial of access, relocation costs and long term damage to reputation.
Commercial insurance policies do not generally cover losses following a terrorist incident (usually described as an attempt to overthrow or influence government). Given the current climate, terrorism insurance is something that every business should consider regardless of their location.
The insurance market provides various alternatives for UK business under the banners of Pool Re or Open Market.
The Pool Re scheme was set up in conjunction with HM Government in 1993 in response to a series of attacks during the Northern Ireland troubles and responds to terrorism losses which, before 1993, would have been covered by property insurers.
One of the limitations of Pool Re terrorism insurance is that attacks must be committed by individuals connected to an organisation seeking to influence or overthrow a government by force or violence.
In recent years alternative insurers specialising in terrorism cover have entered the market. There are differences between the two and businesses should check with their broker that they are insured by the best available
- Pool Re only covers terrorism intended to influence or overthrow the government (and not, for example, action by animal-rights groups). Other insurers extend to include sabotage, acts committed for political, religious or ideological purposes (e.g. animal rights, environmental and acts which solely cause fear in the general public)
- The Pool Re policy responds only if HM Treasury declares an act was terrorist in nature. Other insurers don’t need this strict definition.
- Pool Re cover excludes an individual acting alone. Other insurers includes acts committed by an individual.
- A key aspect of cover to watch out for is the Denial of Access cover under the policy wording. If customers or staff can’t get to a business it is almost certainly going to suffer a financial loss. A terrorist incident doesn’t need to happen on the business doorstep for the business to suffer. Some insurers extend their cover to incidents up to 1km from the business.
Regrettably, there seems no reason to believe that terrorist activity will decline for the foreseeable future. As part of their risk governance procedures terrorism must again become a key aspect of board discussion and insurance protection. Directors also have a moral duty to protect and inform their employees, failure to demonstrate a sound approach to Terrorism risk management will leave them personally financially exposed.