In way of background to these changes, Pool Re was set up in 1993 following the IRA attacks upon the City of London which led insurers to withdraw from the provision of terrorism insurance for commercial property. The purpose of Pool Re was to ensure that terrorism cover would still be available, with H.M. Treasury acting as a reinsurer of last resort.
As originally constituted, Pool Re provided reinsurance for damage to property caused by acts of terrorism caused by fire and explosion. Pool Re did not supply cover against other forms of terrorist attack. Damage caused by war, or by nuclear devices, was specifically excluded. A “retention” arrangement was also operated, under which insurers bore the first amount of a claim, usually up to £100,000.
After the terrorist attacks of September 11 2001, and subsequent incidents such as the anthrax scares in the USA, concern was raised that a wider range of risks would need to be reinsured to take account of the potential range of possible terrorist attacks. After representations from the insurance industry expressed grave concern about the defects in Pool Re’s cover, a government and industry working group was set up to examine the necessary changes. Accordingly, several changes to the Pool Re scheme are to be put into effect, either in the next few weeks or from 1 January 2003.
In the next few weeks the following changes will be effected by a unilateral variation of the Pool Re Underwriting Manual:
- The cover provided by Pool Re will be extended to cover “all risks” rather than “fire and explosion”, allowing the scheme to cover impact by aircraft or contamination for example.
- Premiums for the extended cover will be calculated at double the premium on the existing cover. Insurers may choose as to whether they have their cover backdated or not. These changes should be available in the next few weeks, with an option to backdate cover to 1 January 2002.
- The clause of the policy excluding liability for damage caused by nuclear devices is to be deleted.
- Insurers will be free to set their premiums for underlying policies according to normal commercial arrangements.
- The retention arrangements are to be changed. At present, insurers bear the first amount of any claims upon a policy covered by Pool Re. This has had the effect of leaving insurers unsure of their exact liabilities. It is intended to change this to a per event retention, combined with an overall aggregate limit for each insurer based upon that insurer’s overall terrorism market share. This will allow insurers to know the maximum sums they could be liable for in one year.
- Pool Re and H.M. Treasury have agreed to re-examine the detailed
role of the Treasury in day-to-day decisions. Under the new
arrangements, the Public Interest Director on Pool Re’s board will
provide an annual report to the Treasury regarding Pool Re’s
performance.
Herbert Smith has advised Pool Re throughout this process.
© Herbert Smith 2002
The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.
For more information on this or other Herbert Smith publications, please email us.