Over the next few weeks I will be looking at major Terrorism Schemes and talking in some detail about what they are, why they were created and what the business value of them is.
All the schemes I’ll be focusing on require preparation of multiple spreadsheets, hours of diligent work to satisfy Regulator’s requirements. What if I told you that we at Acini believe you shouldn’t waste too much time on that? That this can be done much more quickly and accurately? We have already developed a solution for TRIA return and we’re working on the next one. Feel free to contact me at kuba@acini.pl if you want to know more.
Why do we need National Terrorism Insurance Schemes?
In the wake of the 9/11 attacks, the global insurance industry was overwhelmed by enormous insured losses related to the terrorist acts. This stark reality exposed the lack of capacity and risk modelling capabilities within the private insurance markets to adequately cover such extreme terrorism events. To restore stability and ensure continued availability of terrorism risk coverage, several countries established national terrorism risk insurance programs and pools.
These schemes essentially act as reinsurers or backstops for terrorism exposure, providing a financial buffer and risk-spreading mechanism through public-private risk-sharing arrangements. Some of the major national terrorism insurance programs include:
- Terrorism Risk Insurance Program (TRIA) – United States
- Pool Re – United Kingdom
- GAREAT – France
- Australian Terrorism Insurance Act (ATIA)/ARPC – Australia
- Extremus Versicherungs-AG (TEKO) – Germany
- Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden (NHT) – Netherlands – if you don’t speak Dutch and can pronounce this name I owe you a beer!
The overarching objectives of these schemes are to promote insurability of terrorism risks, maintain available and affordable insurance capacity, and safeguard economic resilience in the event of major terrorist attacks. They operate by:
- Providing commercial property/casualty insurers with reinsurance protection for certified/declared terrorism losses above a defined threshold.
- Collecting risk-based premiums from insurers to build up claims-paying reserves.
- Enabling risk spreading across the insurance industry based on market shares.
- Securing government financial backing as an additional layer of protection.
- The importance of these schemes cannot be overstated. Prior to 9/11, terrorism was considered a relatively minor and unmodelled risk. By putting mechanisms like risk-sharing pools and public reinsurance in place, economic disruptions from catastrophic terrorism events can be minimized. Insurers can continue to underwrite assets and properties deemed higher risk with confidence of having sufficient capacity to pay claims.
While fortunately no terrorist event on the scale of 9/11 has occurred in major cities over the past decade, these schemes have still managed claims from notable attacks like the 2015 Paris attacks (covered by GAREAT) and the 2017 Manchester Arena bombing (covered by Pool Re). However, specific claims amounts paid are rarely disclosed.
As the threat of terrorism persists globally, these national insurance schemes serve as vital pillars in protecting societies against the financial fallouts of such acts. Their unique risk pooling and public-private partnerships have restored terrorism risk insurability and provide a framework for economic resilience in the face of catastrophic scenarios.