The Commonwealth Treasury released its report yesterday on the
2009 review of the Terrorism Insurance Act 2003
(Act). The report recommends that Australia's
terrorism insurance scheme (Scheme) continue for
at least another three years.
The Scheme was established under the Act to minimise the wider
economic impacts following the withdrawal from the market of
terrorism insurance as a consequence of the terror attacks in New
York on 11 September 2001. Approximately 18 other countries have
adopted similar schemes and the proposed continuation of the Scheme
is consistent with the approaches of other major OECD
The report has determined that despite market improvements,
there remains insufficient capacity to meet the demand for
terrorism insurance at affordable rates. Global capacity for
reinsurance of terrorism risks has also improved for nationally
pooled arrangements. However, the report again determines that
there is insufficient capacity at reasonable prices for individual
The report recommends a number of minor 'refinements to the
the Australian Reinsurance Pool Corporation
(ARPC), which was established to administer the
scheme, will continue to collect premiums at current rates; and
will investigate the purchase of further retrocession with funds
from the pool
industry retention levels should remain at the levels that took
effect on 1 July 2009
the ARPC should not be required to maintain a line of credit
facility for the scheme, but should investigate the purchase of
the ARPC should examine the effect of extending the scheme to
mixed-use, high rise buildings that are not predominantly for
commercial use. Recommendations should be reported to the Minister
with findings by 30 September 2010.
The report also acknowledges the strong performance of the ARPC
over the 2006 to 2009 period that included the building of
financial stability of the Scheme through the management of the
pool and the purchasing of retrocession.
Despite lesser growth as a result of the global financial
crisis, with an annual increase of approximately $93 million
dollars compared with 2007-2008 growth of $125 million dollars, the
pool remains valued at a very substantial $550 million dollars
From the perspective of potential Insured's in Australia,
the Scheme will remain in place and ensure cover for eligible
property (under the Act) against losses resulting from terrorism,
at commercially reasonable prices. The potential expansion to
non-commercial property will also be viewed with interest.
For both Insurers and Insured's, the additional terrorism
levy looks like it is here to stay - at least for another three
The additional refinements do not appear to have any substantial
impact on an Insured's rights. The next ministerial review is
scheduled for 2012.
Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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