London attack to spark further demand for widening terror cover

Insured losses from the horrific terror attack on central London this week will be small, but the attack is likely to spark a rise in demand for specialist terror and political violence cover, with business interruption (BI) protection top of the list. Tim Davies, co-head of sabotage and terrorism at Lloyd’s insurer Sompo Canopius, told Commercial Risk Europe that sadly this week’s attack will not come as a surprise to most in the specialist insurance market, government and security services. It is only because of the highly skilled work of the security services that this was the first attack of its kind in the UK. Mr Davies said the UK will be continue to be on high alert for some time and follow-up attacks cannot be ruled out. The rapidly evolving nature of the terror threat, whereby individuals and small groups are using readily available “weapons” such as cars and knives, makes the threat more difficult to prevent. But London’s terrorism and political violence market is at least willing and able to offer more cover than ever before and provide a widening range of options for risk managers in both property and liability lines to help mitigate the risk. BI cover is particularly popular in this market currently, and underwriters are seeing a rising level of claims in this increasingly important area, said Mr Davies. “For our market, claims from the attack in London yesterday will probably not be very large. There may be some BI losses, possibly under Pool Re, but in effect this was not targeted at businesses such as a shopping mall or hotel; the target was government and people. It will, however, make people more aware and we always see an uptick in demand for terror and violence cover after such an attack,” he said. “We are finding that more sophisticated risk managers are not only looking for property damage cover but also BI and CBI [contingent business interruption], as the risk itself and the market evolves. There is a large amount of capacity in the market currently, certainly billions of dollars in the London market. But aggregates are tight in high profile areas such as central New York and London, so demand for coverage outside of the government pools such as TRIPRA and Pool Re is high,” added Mr Davies. Claims may be rising, but the terror market is still profitable. Therefore, there is buoyant capacity is on offer and prices are relatively low. But Mr Davies warned that the market needs to remember that this remains a catastrophe class, with huge potential exposures. The BI coverage on offer for terrorism risks has improved in recent times, in response to demand. Open market underwriters such as Sompo Canopius are offering a wider range of options that the pools do not offer. This includes coverage for terrorism and loss of attraction for high profile venues, explained Mr Davies. “BI capacity is available. It is now normal for people to buy business interruption as well as property damage. The market has responded, and it needed to because the attachment levels provided by the pools are high and triggers can be limited. As a market, we are able to provide what the customers need and the key demand driver is BI currently. It is now more of the norm,” he told Commercial Risk Europe. Risk managers who seek to include terrorism and political violence cover within their global programmes are advised to look at the options available in the specialist market. This is because they may find the cover is excluded by their all-risks policies or limited under reinsurance treaties, said Mr Davies. Given the plentiful reinsurance capacity on offer currently, however, a number of all-risks carriers will buy facultative reinsurance themselves so they can offer the cover but shift the risk off their books. Lloyd’s remains the best market to go for a tailored approach that best fits the underlying risk, argued Mr Davies. “A risk manager can come to Lloyd’s and find a more tailored approach. London is still the centre of innovation and capacity, but it has to be said that other global centres such as New York and Dubai are competing,” he said.

London attack to spark further demand for widening terror cover

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