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Market Overview - Terrorism Insurance

28 April 2021

 2020 was a difficult year with restrictions in place for the majority of the last 12 months. Businesses, including those in the leisure and hospitality sector, have sought to reduce costs where possible. 

With the Terrorism threat level downgraded from “severe” to “substantial” in the UK, policyholders may have been lulled into a false sense of security—electing not to protect their businesses against this all too real risk. It is estimated that less than 15% of SME businesses currently have Terrorism Insurance, leaving many exposed. 

On the 12th April 2021 in England, non-essential shops and outdoor hospitality, including pubs and restaurants, were allowed to reopen with some limitations. Additional restrictions will be lifted on the 17th May 2021 in England, including the reopening of indoor hospitality and large stadiums.

As businesses open further and large gatherings increase, the potential for terrorism threats and attacks is likely to increase. It will be an important time for brokers to discuss how Terrorism Insurance should be instituted as part of a business’ risk management portfolio—as the reality may be whether many businesses can afford not to purchase Terrorism coverage.

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Terrorism Threats are Evolving

In the past 10 years, there have been more than 740 terrorist incidents in the UK. Terrorist attacks have evolved from large scale bombs to more poignant attacks that include the use of vehicles, bladed weapons, firearms, and improvised explosive devices (IEDs). 

Attacks are also increasingly led by small groups of people or even a “lone wolf” that may not be organised on a grand scale and are thus harder to thwart. Another rising trend is the recruiting of children under 18 years of age for terrorism-related activities—occurring in worrying numbers during lockdown.

Just before the pandemic, there were two notable terrorism incidents in the UK: the November 2019 London Bridge stabbing and the 2020 February Streatham stabbing. 

History has unfortunately shown us that Terrorism Insurance should be considered as an essential part of a company’s insurance programme, especially for those in the leisure and hospitality sector.

Terrorism Insurance: Coverage Details

Terrorism Insurance policies were first introduced in 1993 following the bombing of the Baltic Exchange in London. Over time, insurers have evolved the products offered by customising policies to fit the specific needs of clients. 

As the types of attacks have evolved, so has the coverage offered by insurers. In recent years, businesses have suffered financially though a terrorist attack, without incurring a physical loss. This exposure led to the introduction of non-damage denial of access and loss of attraction extensions to traditional material damage cover.

A Greater Need for Terrorism Insurance

The threat of terrorism has not disappeared. Even during the pandemic, at least three major terrorism plots were stopped by authorities and 185 arrests were made across more than 800 live investigations, according to BBC news reports.

2020 was obviously a tough year financially for many businesses in the leisure and hospitality sector. Unfortunately, these are the types of businesses that are often at the greatest risk because terrorists will target them for maximum impact and both physical and human destruction. 

As a result, tourist attractions, retailers, restaurants, healthcare facilities and more in London and other major cities should consider the value and protection that a Terrorism policy provides. Large employers with staff in other industries should also be educated about its benefits. 

As many businesses were forced to cut back on their insurance costs in 2020, it is likely that many Terrorism policies were not renewed. However, as the world’s economy recovers, brokers should prioritise discussing these options. Helping clients make informed decisions will better protect their businesses and investments. 

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.

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