Terrorism insurance - How your business could benefit
The last few years have seen a shift in the nature of terrorism. Attacks by small groups and individuals acting alone are becoming more frequent, making the risk of businesses being impacted by an act of terrorism much greater than previously the case.1 This should concern all businesses as losses due to a terrorist act are generally excluded unless specialist additional cover has been purchased.
Even polices backed by the Government backed Pool Re, will only cover physical damage, such as replacing shattered windows, leaving you accountable for trading loses that might be incurred as a consequence of a terrorist event.2
The effect of terrorism on business
According to the Global Risks Report 2018, acts of terrorism rank in the top 10 risks affecting global businesses. But the financial shortfall surrounding acts of terrorism can be damaging for businesses of all sizes, and not only those directly targeted.1
The impact of a terrorist attack can cost businesses more than just damaged property. Indeed, the knock-on impact from an attack in terms of business interruption and consumer confidence can be long-lasting and reach beyond the immediate vicinity of an attack.2
Aside from physical damage, in the event of a terrorist attack, businesses can expect additional losses in the form of:
- Lost revenue
Borough Market traders saw business losses of £1.5 million after the terror attack at London Bridge.3 Standard business interruption policies do not generally provide cover for acts of terrorism.
- Supply chain disruption
In 2017, data showed a loss in economic output of €3 billion following the five major terror attacks at Westminster, Manchester, London Bridge, Finsbury Park and Parsons Green.4 Terrorist attacks often have wide-spread knock-on effects that impact businesses miles away from the act itself.
- Security costs
Terrorism pools are areas highlighted as being at increased risk of terror. To protect against this risk, businesses in these areas are likely to incur increased costs in the form of insurance premiums and costs of security, and so decreasing overall profit margins.5
Insuring your business against terrorism
A commercial terrorism policy will not only take into account the most common terror threats to your type of business, but will further consider the threats posed by risks in your local area.
Like your standard property insurance, terrorism insurance will cover you for damaged or destroyed property, including buildings, equipment, and furnishing. But it should also cover losses associated with the interruption of your business as a result of terrorism, even where there has been no physical damage to insured property. Business interruption could include the costs of temporary rental spaces, overtime pay and loss of revenue in the event that customers are temporarily unable to reach your business location.1
To effectively protect your business against terrorism, some insurers use risk models to:
- Simulate likely scenarios that could affect businesses during a terrorist attack, considering both physical damage and business interruption. This helps determine the impact to a company’s overall portfolio.
- Determine appropriate insurance deductibles and limits.
- Optimise risk finance strategies, ensuring cover for everything from property damage and cyber losses, to business interruption and employee compensation.
- Understand potential impact on capital.
- Build and test robust crisis management and business continuity plans to be employed in the event of a terror attack, helping minimise imminent losses and manage long-term recovery of assets.
- Address terrorism risk aggregation.
- Prioritise risk mitigation strategies.
- Help make informed decisions about implementing loss control measures.1
Terrorist threats don’t only affect those who are targeted. They have knock-on effects for those in the surrounding area, or even for those remotely associated with the targeted organisation. Terrorism insurance should do more than protect your physical assets. It should provide appropriate levels of cover and integrate with your business continuity plans to ensure your business can continue to operate in the event of a loss.