Terrorism coverage has been excluded in Northern Ireland for a number of years. In 1977, the British Insurance Association announced a standard form of exclusion relating to terrorism losses in Northern Ireland. This led the Irish government to introduce the Criminal Damage (Compensation) Northern Ireland (Order of 1977).
In order to be able to benefit under this act, a claimant must show that the damage incurred was unlawfully, maliciously or wantonly caused to property either by a riotous assembly or as a result of an act committed maliciously by a person acting on behalf of or in connection with an unlawful association. Under the act, a justification for a claim is a certificate issued by the Chief Constable of the Royal Ulster Constabulary indicating that the loss falls under one of these headings. Insurers have not in fact excluded riot losses from their coverage but many claims under the other section of the order can effectively be considered terrorism claims.
In Spain, terrorism is one of the catastrophe perils covered by the Corsorcio system, which is both obligatory and financed by the government. Premiums are collected by statutory rates on property values. Corsorcio also covers other catastrophes, including floods, and earthquakes, but the system does not include business interruption coverage. There is no restriction on the private market providing this catastrophe perils coverage, but the contributions must still be made to the Corsorcio pool. Companies operating in Spain have no difficulty buying adequate limits of terrorism coverage for property damage and business interruption, and the market tends to provide for coverage other than Corsorcio’s on a difference-in-conditions basis.
In France, full terrorist coverage is available for property damage insurance, and in fact legislation requires insurers to provide this protection. Under this arrangement, the direct insurer has the option to retain the risk, reinsure it on the commercial market or reinsure the risk with the CCR, which is the French state-controlled reinsurer. This flexible arrangement allows direct insurers to vary the percentage that they reinsure on a year-by-year or case-by-case basis. This obligation to insure does not apply to business interruption, although in practice both property and business interruption can be purchased to very adequate limits in the open market. These insurers have not however, experienced losses as large as those that hit London and New York in recent years.
France also has a pool to which insurers are obligated to contribute. This pool provides protection for personal injury to anyone harmed in a terrorist attack. France also has a catastrophe reinsurance program colloquially referred to as CAT NAT. This scheme supported by the government reinsurer, applies a levy of nine percent to all property premiums which pays for catastrophe perils losses. If the problems that the United Kingdom now have were to develop in France, it is likely that an adjustment would be made to the CAT NAT system.
In South Africa, there is obviously a very considerable threat from terrorism. In 1976, following riots in Soweto, the insurance market determined that it could not cover terrorism risks and advised the South African government that they were canceling cover. However, a cooperative deal was worked out between 15 of the largest direct insurers and the government. This involved the 15 companies effectively capitalizing a pool called the South African Strikes and Riots Insurance Association (SASRIA); the original capitalization was five million rand spread proportionately according to the size of the 15 companies, which was subsequently raised to 10 million rand.
The arrangement’s main feature, however, was the government’s backing as a reinsurer of last resort. Soon after the pool was established, the reinsurance market became involved in excess of loss protection, and SASRIA is now very significantly funded at four billion rand, or approximately $75 million. Clearly, the pool has very significant exposures, but it seems that the stated objective of the arrangement is to build up the pool to approximately 20 billion rand. Although there are limitations to this system, it seems to meet the needs of most businesses.
This article is reprinted by permission of Risk Management magazine.