Think you don’t need Terrorism Insurance? Think Again!
Following recent tragic events in London, I’ve been thinking about the effect of terrorism on business; more specifically on SME’s and also on the insurance industry. Several of my contacts have posted on LinkedIn, pointing out that denial of access to bars, shops or places of work have bankrupted many firms (often SME’s operating on small margins) following terror incidents. This sparked my interest and I decided to do some research.
Approximately 80% of businesses do not have any form of insurance against loss in the event of a terrorist attack.[i] Insurance brokers will want to ask; why are so many businesses missing out on this important aspect of their insurance cover?
The fact that only around 1 in 5 businesses have terrorism insurance is concerning. Insurance specialist, James Woolerton, at Tristar Special Risks, suggests that Terrorism Insurance is bought by two types of people; the “informed and the obliged” – or in other words - those who understand how important it is, due to having a clear understanding of the risks; and those who are forced to purchase terrorism cover, for example by a mortgage provider.[ii]
To get more SMEs responding to this risk, it is important that more companies join the ranks of the “informed”.
What is terrorism insurance?
Insurance against terrorist attacks can be difficult to define; because terrorism itself is difficult to characterize. While there are varying definitions available, it is important to remember that though the most common perception of “terrorism” is that of bombings carried out by recognised extremist groups, the description is actually far wider than that. Terrorism can include an attack by any group seeking to cause fear or disruption through violence and force in order to create change. Therefore, even situations, such as violent interruption of transport by political activists, could be considered a terrorist event. This decade has also seen a rise in the risk of cyber terrorism causing dangerous confusion and disruption. Although Tri Star Special Risks’ James explains that, “The major challenge here is attribution, which is to say how is it proven that a cyber attack is terrorist in nature, and why shouldn’t the cyber policy respond?”
What are the risks?
The most obvious risks come to mind first; such as having property or goods destroyed by acts of terror. However, effects can be further reaching than the immediate site of an attack. Sometimes, whole areas are evacuated due to an act of terrorism for a wide radius around the site, or transport is closed down, meaning that people cannot move from place to place. Venues may be off-limits for days or weeks. Consider how being unable to access your place of work for several hours or days could have a financial impact on your income; particularly at times of year such as Christmas when many businesses rely on high volumes of sales to make up for quieter periods in the year. Wide reaching cyber terrorism may result in loss of sales, data breaches or other costly issues. It is important for SMEs to seriously consider the real risks of terrorism.
Surely, I am already covered?
20% of the companies without terrorism insurance believed that they were already covered under their current insurance policy.[iii] This is a common misconception. The reality is that if you have not specifically asked for, or been offered terrorism insurance, you probably do not have it. Most business insurance does not include terrorism insurance as standard. Make sure you discuss the small print of your insurance policy with your broker to ensure that you do have terrorism insurance if you believe that you are already covered. You will need to think about cover, both for injury and damage to property; and also for any loss of earnings due to disruption / denial of access caused by acts of terrorism.
The risk is small
Of businesses that have not opted into terrorism insurance, 22% said that this is due to feeling the chance of such an event is “small.” [iv] Happily, this is true – the risk is very small. However, insurance by its nature is there to cover you for a risk that is relatively improbable but with the risk of a severe loss if an unlikely event were to take place; guaranteeing that an individual or company is not destroyed by such an event.
In terms of terrorism, the possibility of having your business disrupted by terrorism may not be as remote as you may think; and the potential loss could be extremely significant.
My business is in a low risk area
It is true that some areas may be more at risk of becoming the target for terrorist attacks than others. However, it is important to remember that the fallout zone of a possible attack, extends well beyond the immediate area. Travel can be interrupted, and entire neighbourhoods sealed off. This may have knock on issues such as not being able to get to a critical event (or having to cancel a high-profile event) due to no access. Whilst terrorists may choose to act in busier areas, a ‘bomb factory’ could be in a residential, rural of industrial area.
For example, after the devastating 7/7 London attacks of 2005, areas as far away as Leeds had to be evacuated while a bomb making base in a residential area was made safe by bomb disposal teams. This kind of disruption – particularly at a busy time such as Christmas - could make or break a small business. Therefore, it is vital to take out cover that includes interruption to trading as the result of a terrorist attack; not just loss of property.
This is summed up by Ged Hickey, Director of Edison Ives Insurance Solutions, who explains, “Many business owners are taking a huge risk by not purchasing terrorism insurance. It’s not only the physical damage that needs to be considered, but also the cost of denial of access (which could be for weeks following an incident). Unfortunately, the overall cost of recovering often runs into thousands, and many small businesses struggle to recover following an incident. A good policy not only safeguards business income, equipment, and property, but also provides peace of mind.”
I don’t know what kind of terrorism insurance I need
Not all terrorism insurance is the same. Ask your broker to go through the small print with you to check what your terrorism insurance covers. Some may cover only cyber insurance, or only the risk of losing property or injury. Others may include disruption to the business that results in loss. Your broker will be informed on all the different aspects of terrorism insurance. Speak to them about the risks for your business and discuss the level of cover that you need.
What to do next?
I’d strongly advise any business owner to speak to broker such Edison Ives Insurance Solutions - https://edinsure.co.uk/. The team there are well-versed in providing terrorism cover for businesses of all shapes and sizes, and are very well-connected with terrorism Underwriters from a range of specialist insurers.
For any insurance connections looking for specialist terrorism cover that is both competitive and comprehensive, please contact James Woolerton of Tristar Special Risks. - https://www.tristarspecialrisks.com/
James is really passionate about terrorism insurance and would be glad to partner with any brokers who would like to educate both their clients and colleagues about how this niche cover gives an extra layer of security in an uncertain world.
[i] Lauren Ingram. 2019. 'Ignorance is no excuse' when it comes to terrorism insurance | Insurance Business. [ONLINE] Available at: https://www.insurancebusinessmag.com/uk/news/kidnap-ransom-terrorism/ignorance-is-no-excuse-when-it-comes-to-terrorism-insurance-170698.aspx. [Accessed 17 December 2019].
[ii] Woolerton, J., 2019. Terrorism Insurance Buyers: The Informed and the Obliged: Tristar Special Risks.
[iii] Lauren Ingram. 2019. 'Ignorance is no excuse' when it comes to terrorism insurance | Insurance Business. [ONLINE] Available at: https://www.insurancebusinessmag.com/uk/news/kidnap-ransom-terrorism/ignorance-is-no-excuse-when-it-comes-to-terrorism-insurance-170698.aspx. [Accessed 17 December 2019].
[iv] Lauren Ingram. 2019. 'Ignorance is no excuse' when it comes to terrorism insurance | Insurance Business. [ONLINE] Available at: https://www.insurancebusinessmag.com/uk/news/kidnap-ransom-terrorism/ignorance-is-no-excuse-when-it-comes-to-terrorism-insurance-170698.aspx. [Accessed 17 December 2019].