One of the major risk lessons learnt from last year’s London Borough Market terrorist attack was how non-damaged businesses suffered in the aftermath of the attack due to the Police cordon. Being unable to trade while the area was cordoned off for days, many businesses in the area but not directly at the scene incurred losses.

Crowded places have become an attractive target for international and “home-grown” terrorists, and terrorism insurance has rapidly emerged as one of insurance’s hottest products. In response, the Government has expressed its intention to have the law revised and enable Pool Re to extend the terrorism reinsurance scheme to include non-damage business interruption cover.

Many businesses, particularly outside of the large cities, still don’t consider cover is important for their business. Lone wolf attacks have become more prevalent and may not be limited to city central areas. Whilst property damage may be minimal, the potential losses to a small business from “denial of access” while authorities undertake thorough investigations may be extensive and may possibly threaten the future of the business.

The definition of terrorism insurance by the legislation governing Pool Re is that attacks must be committed by individuals connected with an organisation which is seeking to influence or overthrow a government by force or violence. An attack must be defined as an act of terrorism by HM Treasury. The 1993 Act currently only triggers compensation claims if physical damage occurred to commercial property – meaning that businesses, inside a police cordon, that suffer financial loss due to not being able to access their property or trade, were only covered if there was physical damage during a terrorist attack. For example, businesses surrounding Borough Market are having difficulty getting insurance claims paid for this very reason and this is a gap that Pool Re was keen to close.

In April 2018 there was an important breakthrough. Pool Re extended its cover to include material damage and direct business  interruption, acts of cyber / remote digital interference caused by acts of terrorism.

Another case, which was not classed as a terrorist attack is the Salisbury incident earlier this year where many businesses remained closed months after the incident. These businesses, and others affected by people staying away from Salisbury’s retail and tourism centres, will almost certainly have been unable to cover their losses, as risks would invariably have been excluded by all commercial insurance policies. In its latest Terrorism Frequency Report, Pool Re, the UK’s government-backed terrorism reinsurer , has reported that the losses suffered by Salisbury businesses in the wake of the nerve agent attack have exposed an oversight in the way in which insurers cover terrorism risks. Local attractions and businesses saw footfall reduce drastically. Salisbury Cathedral, a huge tourist attraction, saw footfall drop by 40% in the week immediately after the incident and a month after the attack, the visitor rate was still down 20% and income was down 24%.

The significant interruption to business in Salisbury raises some interesting issues for business interruption (BI) insurance policies as traditional commercial property and business interruption policies do not offer such cover.

Business Interruption policies have traditionally been triggered by damage events like fire or storm, but have in many cases now been extended to cover other causes of interruption like closure of an area due to a crime scene or infectious disease. Business Interruption policies have deliberately excluded risks related to war and the use of Chemical, Biological, Radiological, Nuclear attacks due to the sheer magnitude of potential losses, which would be more appropriately funded by other means, such as the Government. The Salisbury incident, whilst not declared a terrorist attack, can have far-reaching financial consequences for local business owners and residents.

Businesses can be confident they will be covered in the unfortunate event of a terrorist attack, and back up and running quickly – but only if they are covered! To discuss non-damage denial of access cover for your business please contact GPS Insurance Brokers on 020 8207 7385.

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