Protect yourself against terrorist acts

Protect yourself against terrorist acts

Commercial markets have matured and become much more innovative in their underwriting approach to terrorism.

The Terrorism Insurance Act 2003 (TI Act) was enacted by the Commonwealth Government following the withdrawal of terrorism cover by insurance companies. The Australian Reinsurance Pool Corporation (ARPC) was established under the TI Act, to develop and administer a reinsurance scheme, which commenced operation on 1 July 2003.

Insurers have the option to show the terrorism premium as a separate item and decide on the amount charged.

“However, we are aware that insurers use ARPC’s reinsurance cost as the basis for determining their terrorism insurance premium,” a spokesman says.

“ARPC’s reinsurance premium is the same as any other reinsurance costs. Consequently, we would prefer that it is treated in the same manner and not shown separately on the original insurance policy.”

The Terrorism Insurance Act 2003 establishes the framework for the Australian Government’s terrorism reinsurance scheme. Where the Minister makes a declaration that an incident is a terrorist incident, for the purposes of the Act, that declaration renders terrorism exclusion clauses in all eligible insurance contracts of no effect.

An example of when the act is applied is the Lindt Café shooting. Treasurer Joe Hockey declared the incident a terrorist act shortly after the event.

He wrote: “I, the Hon J.B. Hockey, Treasurer, being satisfied that a terrorist act has happened in Australia, hereby declare that the actions of Man Haron Monis described in the Schedule constitute a declared terrorist incident for the purposes of the Terrorism Insurance Act 2003.

For the purposes of subsection 6(6) of the Terrorism Insurance Act 2003, no reduction percentage applies.”

In his explanatory statement he goes onto say: “After consulting the Attorney-General, the Minister is satisfied that the incident that occurred on 15 and 16 December 2014 at the Lindt Café, Martin Place, Sydney, consisting of the threats and actions of Man Haron Monis, is a terrorist act or acts. Accordingly, this instrument declares a terrorist incident for the purposes of the Act.

“This declaration renders terrorism exclusions in eligible insurance contracts of no effect. Insurers can reinsure their terrorism risk with the Australian Reinsurance Pool Corporation (ARPC). The ARPC charges insurers a premium for reinsurance and requires that they retain some terrorism risk.

Information supplied by the ARPC indicates that the total insured losses from this incident are not expected to exceed the portion attributable to individual insurers and so are not likely to involve claims on ARPC reserves. Because the Commonwealth is not expected to be liable for payments under section 35 of the Act exceeding $10,000 million, no reduction percentage applies to this declaration.”

The Terrorism Insurance Act applies to a limited range of insurance contracts including:

  • loss of, or damage to, “eligible property” (specified types of property located in Australia) that is owned by the insured;
  • business interruption and consequential loss, including damage to property or inability to use eligible property, or part of eligible property;
  • liability of the insured.

To manage your insurance for terrorist risks, a business should measure its exposure to the risk of a terrorist incident and to assess the extent to which existing insurance policies respond to those risks. If the risk exposure is significant, the business should consider what it could do to effect the desired level of cover.



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