Many SMEs tend to be complacent when it comes to terrorism. Our experts share why it’s important brokers make sure it is on their radar.

Heavily armed officers at every airport, soldiers carrying weapons on beaches, bomb disposal experts as well as elite military units. These aren’t descriptions of a war-torn country, these are familiar sights in Paris, Cannes and Cote d’Azur.

Could these become commonplace in Australia as well?

Lisa Hiscock, Underwriter, Crisis Management, XL Catlin says, “Australia is not immune to the global rise in terrorism threats. Our current National Terrorism Threat Level is ‘probable’, which means there are individuals or groups who have the intent and capability to conduct a terrorist attack.”

The vigilance of police and counter-terrorism authorities has so far protected Australia from a range of frightening atrocities on home soil. Ever since the national terrorist threat was elevated in September 2014, there have been four “successful” attacks, three in NSW and one in Victoria, and 12 disrupted terrorism plots.

The recent plot in Sydney to bring down an aeroplane, further reinforces that we are not immune from the threat.

Australia has reasons to be concerned believes counter-terrorism specialist and former US soldier Reid Sawyer, Senior Vice President at JLT, “The problem of terrorism is global and it is present here in Australia as it is present in other countries even if the number or the density is not perceived as the same.”

Despite all this, there seems to be a certain complacency in Australia, particularly with SMEs.

Stella Pruscino, Account Director, Edgewise Insurance Brokers, says, “Many SME and even corporate businesses don’t have a robust business continuity plan and aren’t aware of the Australian National Security website.”

Pruscino believes that the Australian National Security’s recent ‘Strategy for Protecting Crowded Places from Terrorism’ has a wealth of information for insurance brokers to discuss and work through with their clients.

It includes practical guidance on protective security, information to help owners and operators better understand terrorist weapons and tactics, including ‘active armed offenders,’ improvised explosive devices, chemical weapons, and hostile vehicles.

“The problem of terrorism is global and it is present here in Australia as it is present in other countries even if the number or the density is not perceived as the same.”-Reid Sawyer, Counter-terrorism specialist & Senior Vice President, JLT.

Insurance in the current terror climate

Almost all insurers presently exclude terrorism from commercial property insurance policies including Industrial Special Risks, Fire, and Business Package insurance policies.

The Australian Reinsurance Pool Corporation (ARPC) operates under the Terrorism Insurance Act 2003 (TI Act) with funding available for claims of about $13.4 billion. When a declared terrorism incident occurs under the TI Act, then errorism exclusions in commercial property insurance policies are over ridden and the insurer must pay the claim within other policy terms and conditions.

Legislation was passed to ensure that from 1 July 2017 the ARPC scheme fully covers biochemical terrorism incidents within Australia for businesses.

At the same time, the insurance market globally has developed and adapted products to meet the evolving nature of terrorism and violent attacks that may threaten a business.

Indeed, in the years since the Arab Spring in 2010 and capture of Osama Bin Laden, the structure of terrorism has only continued to evolve. Hiscock says, “Globally, we have seen a rise in terrorist attacks involving low cost and easy-to-obtain weapons, including knives, explosives and vehicles. Though these attacks are low-cost and simplistic to implement, the impacts can be devastating.”

The primary threat is from lone actors or small groups using simple methodologies believes Dr Christopher Wallace, CEO, ARPC.

However, he says, “The possibility of coordinated attacks against multiple targets cannot be ruled out. Globally, explosives remain a favoured terrorist weapon and online literature provides access to knowledge on such weapons.”

Insurers are moving to cover the resulting risks through a range of products such as active assailant/active shooter, impairment of access, loss of attraction, nuclear biological chemical radiological (NBCR), cyber type coverages and more.

Scott Bolton, Director Business Development and Network Relations, Terrorism at Aon Risk Solutions, commented in 2017 Aon Risk Maps report, “Developments have underlined the importance of considering crisis management perils that go beyond traditional coverage for property damage.”

Cyber terrorism 

Cyber terrorism is another risk that is on the horizon.

However, the Australian Cyber Security Centre Threat Report 2016 states that terrorist groups “currently pose a low cyber threat” and that their “cyber capabilities generally remain rudimentary”. Nevertheless, it warns that within three years terrorists will be able to compromise networks with destructive effect and that cyber terrorism is a growing threat.

At the moment, cyber terrorism, in particular the risk of physical loss and/or damage is usually excluded from commercial property insurance policies.  Currently, it is also excluded from the ARPC scheme.

Dr Wallace says, “I would like to see this coverage gap for cyber terrorism considered in the 2018 review of the scheme by the Commonwealth Treasury to determine the extent of unavailability of cover and whether it should be included in the ARPC scheme.”

Pruscino agrees that there is need for such cover, “Cyber insurance can address financial impacts of acts of cyber terrorism that do not involve physical damage. It can cover multiple disruptive activities against a computer system that would not require a violent or life-threatening act.”

While managing cyber terrorism risk is not simple, fortunately, there is an expanding array of tools and options for managing the growing risk.  There are emerging insurance products to fill many of the gaps in coverage. Some products combine first and third-party coverage for many cyber exposures including those involving privacy, hackers, viruses, network disruptions and online advertising and publications.

However, Pruscino warns, “Insureds must review this coverage in the context of any applicable war exclusion to understand the scope of its coverage.”

In July, this year Michael Pennell, ARPC’s Chief Underwriting Officer, encouraged brokers to continue doing what most diligent brokers consistently do: “Identify risks specific to their clients’ operations and then research the insurance market to assess whether there are products that fulfil their clients’ needs. They should also recommend appropriate risk mitigation measures to minimise their client’s exposure to cyber-attacks.”

“Many SME and even corporate businesses don’t have a robust business continuity plan and aren’t aware of the Australian National Security website.”-Stella Pruscino, Account Director, Edgewise Insurance Brokers

What should brokers know

For now, it is important for brokers to understand the extent of terrorism cover that is provided by government pools (such as the ARPC) and the businesses and properties which are eligible for the cover.

Dr Wallace reminds brokers to be aware of the expanded definitions of buildings eligible for the scheme.

In the case of mixed commercial and residential buildings and high value residential buildings, terrorism cover was previously unavailable or unaffordable. New arrangements from 1 July 2017 extend cover already available for commercial buildings.

As mentioned above, Hiscock reminds brokers that just like the risk itself, terrorism insurance products are continually evolving. She adds, “It is important for underwriters and brokers to work together to provide bespoke solutions to the emerging and new risks faced by our clients.”

She advises brokers to keep in mind that pools tend to focus on addressing the risk of wider scale economic loss and not necessarily the extra expenses affecting businesses after an event, such as risk consultancy and public relations costs.

Pruscino’s advice to brokers is to address impact of a loss to business from all aspects that is physical, revenue, people, brand, reputation etc.

She says, “The only difficulties for brokers in this segment comes from not being prepared and not understanding how the TI Act works in order to better advise their clients on how to mitigate their risk.”

Sawyer believes that brokers play a crucial role in this segment and must be aware and agile in order to keep their clients updated on their changing risk needs. He says, “Segments like these are where brokers can truly make a difference in the risk management sector. Every business whether they are aware or not needs wide-ranging coverage and brokers are more than capable to delivering that.”

Regardless of the terror situation in the country that a business operates, the global situation has far-reaching consequences, especially for those sending employees overseas to countries with less stable security.

They may face a higher risk of incidents of kidnap for ransom, hostage crisis and political evacuation and brokers are an organisation’s first line of defence.

Hiscock adds, “Brokers who have clients with overseas exposure need to make sure the cover the client is getting matches their needs — in some countries there is exposure to political violence perils, strikes, riots, coup d’état and civil commotion.”

In the end, Dr Wallace says, “Every business is impacted by terrorism risk, some businesses may need to purchase a stand-alone terrorism policy to cover overseas risks or risks that are not normally covered under a commercial property insurance policy, for example, additional cover against armed assailants.”


Four things a broker should know

1. The Australian Terrorism Insurance Act 2003.

2. The terrorism pool of the countries that clients have exposures in.

3. Australian National Security’s recent ‘Strategy for Protecting Crowded Places from Terrorism’.

4. Pools do not cover cyber risks.


How the Terrorism Insurance Act works

Traditional policies that have a terrorism exclusion provide coverage should an event occur which is declared a terrorism event by the Minister.

Even though the exclusion will be overridden the following points must be considered prior to the pool responding:

  •  Does the policy meet the Eligible Property criteria under the Terrorism Insurance Act (TI Act)?
  •  Does the policy provide cover for one or more types of losses as defined by the TI Act?
  •  Is the policy or part of the policy excluded under the TI Act?
  •  If a client does not have cover under the policy the Pool cannot respond to the loss.
  •  Business Interruption (BI) and Contingent Business Interruption (CBI) can only be triggered by Physical Damage losses.
  •  Event must occur in Australia.
  •  Any offshore losses affecting BI or CBI will not be covered.
  •  If the policy has an exclusion for the loss or damage and or disruption in addition to the terrorism exclusion, then again there is no cover.