Terrorism: The more attacks, the less insurers covering you for it: As we were just putting the finishing touches to this article, another violent and massive terrorist attack stunned the world. Terrorists hit the city of Mumbai hard, killing hundreds of people - both Indians and Westerners. Even more stunning, Indian Chief Minister Vilasrao Deshmukh has firmly stated that some of the attackers were Britons of Pakistani descent, though as yet the British government has not confirmed this.
Britons are no strangers to terrorist violence. On 7 July 2005 London saw 4 young men blow themselves up amidst unsuspecting commuters, killing 52 people in 4 separate attacks. This recent news from India may only increase the interest of Britons in terrorism insurance.
Yet, terrorism insurance is not easy to get. After the terror attacks in London, Norwich Union was quick to amend the wording on its home insurance policies to make it quite clear that acts of terrorism were not covered. After checking the terms and conditions of home insurance policies offered by 16 other leading companies we have yet to find one that included Terrorism cover and almost all went to great lengths to highlight that fact.
The reason for this is that although the chances of terrorism attacks are very small, their occurrence obliterates the risk and financial models that insurers normally operate on. Insurance is mathematically designed to guard against a range of risk from the probable to the unlikely -- not the extraordinary, which is what a terror strike is. Financially and risk-wise, insurers just can't account for it statistically with any real accuracy.
Although heart attacks from obesity and drink driving kill far more Britons than terrorism, the impact of a single act of terrorism can be financially catastrophic within a very short space of time. For instance, as widely reported in the media, the Canary Warf bombing by the IRA in 1996 incurred an estimated £108 million loss whilst the bomb which destroyed the Manchester Arndale Centre in July of the same year cost an additional £234 million. The total loss caused by the London attacks in 2005 is still being calculated but proposals by the Government to prevent these atrocities happening again by the implementation of ID cards, CCTV surveillance and security are thought to cost close to £20 billion.
With this in mind, the government appears to be forming market structures that will provide more incentives to insurers to provide at least some degree of terrorism insurance. A key element in this is encouraging insurers to pool finances.
For example, a report from the Telegraph mentions that following the New York attacks in 2001, the Government instigated urgent negotiations with the insurance companies and Pool Re -- a scheme set up by the insurance companies and the government to guarantee insurers can continue to cover losses resulting from damage caused by acts of terrorism to commercial property in Great Britain.
The talks centred on the fear that biological, chemical or even nuclear weapons may one day be used and Pool Re was urged to extend its policies to cover such eventualities.
Even so, terrorism insurance is still evolving, and one will probably find it difficult or impossible to get domestically. It is somewhat easier to find terrorism cover as part of a travel insurance package, but one will have to read the fine print on such cover very carefully.
Medibroker.com noted that some travel insurance policies exclude all cover for terrorism, others exclude it only if one is a "participant" in terror/anti-terror activity, and others exclude it quite ambiguously. Medibroker's International Private Medical Insurance (IPMI) is specialist cover that includes terrorist strikes as do many overseas private medical care insurers. They simply have to if they want commercial customers.
UK residents obviously are not that mindful of possible terrorist attacks if so many insurers are able to remove it from their policies without losing business. Did you check your travel insurance policy for terrorist clauses? †
NCD News: Terrorism & Insurers - 01.12.08
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