A terrorist attack, strike, riot, civil commotion and other types of politically motivated unrest can directly and indirectly affect businesses and human lives. Modern day terrorism is multifaceted and constantly evolving in its nature. An insurance policy cannot save lives, but it can provide for financial remedy to business owners to help them restore damaged property and recover quickly, to minimize financial losses resulting from business interruption or loss of rent or loss of attraction.

For many insurance buyers in Europe Terrorism and Political Violence Insurance remains a niche coverage, although it is often required by financing banks or investors. Despite major events such as 9/11 or Paris attacks, markets have not really seen a significant uplift in demand or price. The approach has changed only a few days after the invasion of Ukraine. Many businesses are looking to buy the coverage and are prepared to purchase it at higher costs. Active war in Ukraine has forced the market to shrink, but it remains largely intact.

Insured interests and perils

Critical infrastructure assets, such as energy and communication, are typically considered high risk. But also, other industrial objects and commercial real estate are often targets of terrorist attacks. Needless to say, that the nature of the risk itself has evolved over the past few decades. Due to high interconnectivity of modern economies, significant financial losses can occur even without a physical damage.

Whilst terrorist attacks, including active assailant or “active shooter” events, are becoming less frequent in certain regions, politically motivated violence or unrest and war is currently on the rise. Such events can cause enormous damage to property and interruption to businesses. Strikes, riots, civil commotions and malicious damage caused by individuals or groups often result in destruction of property and looting. Business owners may even become liable to third parties if they fail or neglect to implement safety and protective measures to safeguard life and property of others which is an exposure insurable under terrorism liability, a line of insurance not widely known.

The policies are written on “named perils” basis, which means that specifically named perils or events are insured. The coverage is granted to specifically scheduled and named property and gross profit. It is recommended to purchase policies on “new for old” basis. Underwriters will require a policy limit, which acts as a Combined Single Limit for property damage and business interruption.

The following coverages are available either separately or as a package:

There are specific exclusions of course. The aim is to draw clear lines with other, conventional property damage and business interruption coverages and avoid overlaps. Herewith, few key exclusions:

Loss or damage arising from:

  • Nuclear, Chemical, Biological or Radiation contamination or release

  • Seizure, legal or illegal occupation of property, Confiscation, Nationalization, Requisition

  • Electronic attacks – Cyber Terrorism

  • War between any two or more of the following countries: China, France, the Russian Federation, the United Kingdom and the United States of America (“World War Exclusion”)

  • Direct or indirect threat or hoax.

Standard Coverage does not cover:

  • Land or Land Values

  • Power, transmission or feeder lines not on the Insured’s premises

  • Any building, structure, or property vacant or unoccupied or inoperative for more than thirty days

  • Aircraft or any other aerial device, or watercraft

  • Any land conveyance. including vehicles, locomotives or rolling stock, unless declared and solely located at the property insured herein at the time of its damage

  • Animals, plants and living things of all types

  • Property in transit

Extensions of coverage

In addition to the above-mentioned coverages, there are a number of coverage extensions available, such as:

  • Terrorism liability: covers financial costs incurred by an insured following claim made against them for the damages suffered by third parties or employees who are injured in a terrorist attack at an insured location;

  • Non-physical damage business interruption: unique solution, which addresses the resultant financial burden of terrorism attacks occurring within the surrounding areas of an insured property which do not result in actual physical damage at an insured location;

  • Active assailant / malicious attack: coverage developed to address violent attacks which do not meet the coverage trigger requirements under traditional Terrorism polices, i.e. political, religious or ideological motivation. Initially created to respond to the shooting events which occur within the United States but interest in the coverage has seen an increase in other parts of the world including Europe.

Source:  Zviadi Vardosanidze; Terrorism and Political Violence Insurance (March 19th, 2022), URL: https://www.greco.services/en/news/terrorism-and-PVI-insurance.html (March 22nd, 2022)