UK: The Journal Of Terrorism And Cyber Insurance

Last Updated: 3 May 2017
Article by Clive O'Connell

On-site risk surveys can provide support to support plant operations by providing recommendations based on the surveyor's experience of best practises in the industry and we have seen that in many cases there are 'low-hanging fruit', and that with relatively modest efforts that the most obvious vulnerabilities can be quickly addressed.

Industrial Control Systems

An industrial control system (ICS) is integrated hardware and software designed to monitor and control the operation of machinery and associated devices in industrial environments.

Industrial control systems monitor, automatically manage and enable human control of industrial processes such as product distribution, handling and production. ICS are used in extraction resources like mining, oil, gas and coal, as well as factories, water/waste water treatment, power plants, pulp and paper and transport industries. The systems have helped bring about an increase in speed, responsiveness to conditions and reliability.

Technologies used in ICS include distributed control systems (DCS), programmable logic controllers (PLC) and supervisory control and data acquisition (SCADA). The separation of these systems is becoming less defined as remote telemetry units used to input change become more capable of local control and information technologies (IT) are increasingly integrated with operational technologies (OT).

Historically, ICS hardware was not networked. Many devices for monitoring or adjustment had no computing resources and those that were computerized typically used proprietary protocols and programmable logic controllers rather than full computer control. However, a major focus of the burgeoning Internet of Things (IoT) – and the Industrial IoT in particular– is networking non-computing devices and making it possible for them to exchange data over the Internet.

Despite the benefits of OT modernization and IT/OT convergence, there are drawbacks in terms of security. The modernization efforts often expose older, previously unconnected and harder- to-update systems to new threats. As a result, previously secure facilities may be left open to industrial espionage and sabotage. Kaspersky Labs defines targeted attacks against ICS as the number one threat to critical national infrastructure. Accessed 19th October 2016.


Terrorism is a difficult term to define and many attempts have been made to define it for political purposes. These definitions change as the political landscape changes. Insurance requires a definition of terrorism that withstands political movement. Consistent definitions allow insurers and insurers certainty. Rather than creating bespoke definitions, parties to insurance transactions are advised to accept definitions used across the market.

The question of the definition of terrorism is a fraught one. It has significant political ramifications.

The importance to the insurance industry surrounds the existence of separate terrorism cover and government backed terrorism pools as well as the terrorism exclusions required in other products to allow the two covers to work efficiently together.

A problem with terrorism is that it is created in the minds of humans to influence the behaviour of other humans. As such it is as infinite in its manifestations as the human imagination will allow.

Natural catastrophes are easier to define. We know what an earthquake is and can define a hurricane by its geographical originals and its wind speeds. We have also had experience over many years to understand the significance of fire following earthquake and the difference between flooding caused by rain and tidal surge. Wordings have developed over the decades to deal with the nuances of such claims.

Among man made disorders, riots and civil commotions, wars and insurrections have been round for long enough to allow for judicial definition which gives allows for confidence among draftsmen when using those words that they will be understood and interpreted as they were intended.

Terrorism is more problematic. Of course, terrorism has been round for a long time but until the IRA "spectaculars" in the City of London in the early 1990s the insurance implications were not separate from other losses.

The two major bombings in the early 1990s created a major concern for the British Government. While security in the City of London was increased significantly and the Ring of Steel created, concern still existed as to the ability of the insurance market to cover a very large attack. The aim of the IRA had become economic rather than simply to terrorise people.

The solution was Pool Re and, for the first time it became necessary to distinguish between what was a terrorist caused loss and any other type of loss.

Since the 1990s, the need for terrorism cover separate from the general body of insurance cover has increased as the threat from terrorism around the world has increased. The way in which terrorist attacks are made has developed. The need exists for a definition f terrorism that encompasses everything that is terrorism and excludes everything that is not.

Of course, that is easily said. One only has to look at the political debate that occurs after every

atrocity to see that it is not so easily achieved.

A gunman walking into a government building, a night club, a church, a mosque or a college and killing people, will be described by some as a terrorist and by others as insane, depending, often, on their own political or religious affiliation. Participation in political internet forums or possession of a Quran does not make mentally ill people any less mentally ill. At the same time, it could be argued, few sane people take to terrorism.

Defining exactly what is terrorism and what is not is, accordingly, difficult for political purposes and for insurance purposes. The difference is that grey areas are allowed in politics but have no place in precisely drawn insurance and reinsurance contracts. It is essential to define terms so that they can be known and understood and so that, once an event occurs, all concerned can know immediately what exposures exist and what recoveries can be made.

A similar issue has beset the insurance and reinsurance markets in seeking to determine which losses can be aggregated together into one claim when they arise out of similar circumstances or appear to have a common cause.

Two significant examples of this conundrum exist in the sphere of terrorist related losses with the Black September Dawson's Field events of 1970 and the 9/11 attacks in 2001.

In both cases the question arose as to whether multiple hijackings which appeared to have been coordinated gave rise to one aggregate loss or to multiple losses.

Insurance and reinsurance draftsmen have struggled with the definition of "event" or "originating cause" or "occurrence" or similar language for a very long time.

In the London Market there were a number of cases that went to appeal from arbitration decisions on what constituted one event. Although the definition given by the courts left some people upset by the consequences on the claims that they were making or the payments that they had to make, the consequence of these decisions was that everyone now has a clear idea of what the most frequently used clauses actually mean.

Insurance and reinsurance are concerned with unknown future events. Some of these events are "unknown unknows". It is impossible to predict what a future claims scenario might throw up. That said, because we have some clarity from the courts as to how they will interpret the most usual event wordings, those wordings can be used with confidence that it will be possible to apply the same method of interpretation to future unique or novel claims situations. The cases provide a template if not an answer.

For this reason, most reinsureds and reinsurers will use the words:

"each and every loss and/or occurrence and/or catastrophe and/or disaster and/or calamity and/or series of losses and/or occurrences and/or catastrophes and/or disasters and/or calamities arising out of one event."

There have been some, over time, who felt that they can improve on those words. There are perhaps some brokers who, in a soft market, feel that they can obtain a better deal for their clients. They seek to use other words. In doing so they inject a new risk into the equation.

It took many years and a considerable amount of money to obtain the court decisions which define the most usual words. These words may not be ideal. The deal with abstract future events at the time in which they are inserted into contracts. No one knows the claims to which they will be called upon to respond. Once the claims do arise, they do provide a guide as to how those claims should be aggregated.

Clever new wordings however, do not provide that same guide. While new wordings may be felt by their draftsmen to cover potential future scenarios more effectively, they are untested. Novel claims scenarios could place unexpected strains upon them; strains that give rise to disputes.

It is generally better to adopt and accept widely used wordings which have been tested before the courts. One has a better idea of how they will respond and, because they are widely used, it is more likely that, even in the most complex situations, dispute can be avoided or, if there is a dispute, one will sit alongside the rest of the market in it.

A unique and novel wording, which is untested, however, runs the risk of an isolated challenge. This rule, which applies as much to terrorism covers as to all other covers, also applies to definitions of terrorism.

The courts have not yet had to struggle with a definition of terrorism and so, the wordings created over the past 25 or so years do not have the robustness that one might desire and which comes from challenge and determination. That said, there are definitions now in common use. To this end, the following definitions produced by the LMA are useful:

"an act of terrorism means an act, including but not limited to the use of force or violence and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public, in fear."


"Act of Terrorism means an act or series of acts, including the use of force or violence, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organisation(s), committed for political, religious or ideological purposes including the intention to influence any government and/or to put the public in fear for such purposes."

Using such definitions allows one the knowledge that other participants in the market will face exactly the same questions at the time that the loss occurs. Reinsurers are as likely to interpret the contract in the same way due to other involvements.

To put it another way, if a flaw is found in the wording, one will not be alone in dealing with that flaw and one could benefit by a market wide compromise. To go alone and seek a unique solution to the definition exposes one to the possibility of dealing with one's own flaws alone. There are areas in which to create unique advantages in selling or buying insurance and reinsurance; terrorism definitions is not one of them.

This article was originally published in the Journal of Terrorism and Cyber Insurance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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