Steve Packer by

Posted on September 11, 2015

We are all aware – from the press and other media sources – of the recent threats of terrorism which emanates from hard line Islamic groups. This threat is very different from that posed by the IRA back in the 1970s.

A recent interview with Julian Enozi – head of Pool Re – in the insurance industry’s Global Reinsurance magazine looks back at the history of terrorism insurance in the UK as well as giving his views on how insurance for terrorist acts may be dealt with in future.

Pool Re provides reinsurance for UK insurers in respect of commercial property.  This system works by insurers providing terrorism insurance (including cover for nuclear, biological, chemical and radiation attacks).  The insurers then re-insure the risk with Pool Re in order to limit their liability.   In return for an agreed subsidy paid by Pool Re to the Treasury, the government agree to be the insurer of last resort.

Historically, without Pool Re there was concern that insurers would not have sufficient reserves to pay large claims and that premiums would be unsustainable.

Pool Re was set up in 1993 following the IRA bombing of Baltic Exchange in 1992 which caused three deaths and £800 million of damage.  Since1993 Pool Re has paid out more than £600m in claims and has reserves of around £4bn.    At the time it was set up the government intended that Pool Re would be a temporary solution.  Unfortunately, although the threat posed by terrorism has changed significantly – it has not gone away.

Last year Pool Re and the government held a series of negotiations which have resulted in a new 7 year deal.  There have been several changes to the agreement between the two parties.  The major points agreed are around an increase in the pricing to account for the perceived increase in risk.  A simpler product is also being planned which will be aimed at small businesses.  There is also some discussion around allowing Pool Re to purchase it’s own reinsurance – thereby starting to place the risk back in the market.  The difficulty with this – acknowledged by Julian – is in the area of the cover for the nuclear, biological, chemical and radiation attacks.  This is because there is no data on which insurers can model their rates and, therefore price accordingly.

The exact details are still under discussion and we will keep you advised as the situation develops.


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