Australian Reinsurance Pool Corporation has commenced a 12-month research study on the threat of cyber terrorism in Australia, including the nature and cost of physical damage to commercial property (including business interruption), which may be caused by acts of cyber terrorism.
The ‘Insurance risk assessment of cyber terrorism in Australia’ study will identify and explore current and prospective threats, plausible scenarios as well as the practicalities of extending insurance coverage to include cyber terrorism in Australia.
“Business insurance policies and the ARPC scheme currently exclude coverage for acts of cyber terrorism which affect commercial and high value residential property in Australia,” said Dr Christopher Wallace, ARPC Chief Executive.
Edgewise Insurance Brokers’ Account Director and NIBA Victoria Committee Chair, Stella Pruscino explains, “In Australia, an incident needs to be formally declared as a terrorist incident by the responsible minister before provisions under the ARPC are triggered. With the current cover under the ARPC following “damage-based” triggers, meaning that a property or business interruption loss is only covered if it follows physical damage, It will be interesting to see if coverage is extended to include cyber terrorism in Australia, will the property damage trigger still apply?”
Wallace said, “ARPC expects the cyber research study findings to inform development of government policy in this important area, including the three-year review of the terrorism insurance scheme by the Treasury.” He said the research study will also make a significant contribution to the data set and knowledge of cyber terrorism risk in Australia, a risk which is currently under-researched.
The Terrorism Insurance Act 2003(TI Act) was enacted by the Commonwealth Government following the withdrawal of terrorism cover by insurance companies and in July 2017 the Act was broadened post the 2015 ARPC review to expand the scheme’s scope of eligibility to include certain mixed use residential buildings and high value buildings. The Act was also broadened to include chemical, biological, polluting, contaminating, pathogenic and poisoning.
Pruscino explains, “With the expansion of the schemes scope the ARPC aggregate pool remain unchanged which could potentially result in the limit of cover provided by the ARPC being exceeded in the case of a catastrophic or multiple event occurring. This would result in payouts being capped in accordance with the reduction percentage set by the minister and in effect reduce the level of cover for each eligible policy holder.
Regardless of the extension of coverage under the ARPC pool insurance brokers should continue to have conversations with their clients about their specific terrorism exposure and if the Pool is sufficiently addressing their individual risk exposures. In particular we are seeing the requirement for clients to address their business interruption exposure to non-physical terrorism losses.”
ARPC has commissioned Cambridge Centre for Risk Studies, based at the University of Cambridge in the United Kingdom and the Organisation for Economic Co-operation and Development, based in France, to undertake the research with ARPC.
“Cambridge Centre for Risk Studies and the OECD are well qualified to undertake this vital research and we look forward to working with them,” Wallace concluded.