Terrorism Insurance: is it opportunistic?

Terrorism is not something talked about in everyday conversation. In fact, it is a somewhat taboo subject in most situations – quite unsurprisingly, I might add. It is a difficult topic to talk about, and a near-impossible scenario to imagine. However, there is a particular industry in which ‘terrorism’ is a frequently mentioned subject: flats insurance. 

Upon insuring a block of flats, you will very quickly find that you require specialist insurance –after all, how else could you insure numerous homes under one policy? With more homes comes more responsibility, and with more responsibility comes greater potential for problems. There are various specialist insurances that are usually used to insure a block of flats: 

Buildings Insurance – this is the most well-known type of insurance, and covers the bricks and mortar, the internal and external features and any outbuildings. This is the ‘main’ type of insurance purchased, and covers the building and contents against any damage.  

Directors and Officers Insurance – sometimes, a block of flats is managed by a Residents’ Management Company (RMC). This type of insurance protects the directors and officers of RMCs against any legal proceedings or claims made against them.  

Lift Inspection and Machinery Breakdown Insurance – this covers any lifts or electronic equipment in communal areas – e.g. lift, automatic doors and communal boilers so as to ensure that any repairs or claims are covered.  

Each policy listed above, whilst you may not have previously considered them, do not seem unreasonable. After all, directors and officers need protection just as much as lifts need to be maintained. So, why do people balk at the idea of investing in terrorism insurance? At this point, you may be wondering why terrorism cover is even necessary, especially following the earlier mention of an ‘All Risks’ buildings insurance policy. Surely any damage would already be covered? In actual fact, this is not the case. So, should the worst happen and you hadn’t invested in Terrorism Cover, quite frankly, this would leave you in an unimaginable position. 

In a day and age where the unexpected has become the norm, it is wise to protect yourself against all possible avenues. And, whilst terrorism is definitely a harrowing topic, it is a real threat. Terror threat levels have been fluctuating between ‘severe’ and ‘critical’ since August 2014, with the capital and provincial cities being considered at the highest risk. It has never been more important to be aware of how to protect yourself against the unexpected – and being aware of what is required to protect your home is a logical place to start.  

As stated in a recent article by the Big Issue, it is often the case that residents initially view terrorism insurance as an opportunistic product – and whilst this is understandable, this approach is often mistaken.

“What would happen if Terrorism Insurance did not exist?”

To entertain a different perspective, what would happen if terrorism insurance did not existIt is possible that any damage caused by terrorist activity would be absorbed into the standard buildings insurance policy. Whilst this may seem like a viable option, it would mean standard insurance prices would sky-rocket – alongside already ballooning house prices, this would be disastrous. It would also undoubtedly be the case that finding a moderately-priced insurance policy around inner London would become a thing of the past. This would open up holes in the insurance market for false ‘cheap’ policies which don’t actually offer adequate protection for against any damage at all, terror-related or otherwise.  

There are many residents who hold the belief that terrorism will only affect an unfortunate minority in the capital. Past terrorist attacks, however, have taken place in many different locations aside from London. So, should insurance companies therefore only offer terrorism insurance to those they deem at the highest risk? This poses an enormous problem in itself – terrorist damage is absolutely unpredictable, and should an attack occur in a provincial city (as it often has in the past), who would be held liable for the lack of terrorism insurance in place?  

It is incontestable that terrorism insurance needs to be pulled into the limelight when managing insurance for blocks of flats. In many cases, this type of cover is a formal requirement. The Council of Mortgage Lenders states that insurance needs to be arranged in accordance with the requirements of your mortgage lender. Therefore, if any of the flats in your block have a mortgage, you should check to see whether terrorism insurance is an obligation.  

Within the insurance industry, the most popular provider for terrorism cover is Pool Reinsurance Company Limited – or Pool Re for short. They were established in 1993 as part of a government response to the market failure following the Baltic Exchange bombing in the previous year. Since then, they have paid out claims of more than £600 million, with no cost to the UK taxpayer. Currently, Pool Re underwrite £2 trillion worth of property cover against terrorist damage – a sum which truly stresses how important this type cover really is.  

Terrorism will never be an easy topic to talk about, and it is unlikely to be the first thing you think about when insuring a block of flats. However, when seeking comprehensive protection against the unexpected, Terrorism Cover is often a necessary addition. It is a staple of the British insurance market, without which (as seen in 1992) the industry would surely splinter.