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Wednesday, May 19, 2021

What is terrorism insurance cover? Do you need it?

The importance of terror insurance was brought home by the September 11, 2001 attacks, and the 26/11 attacks in Mumbai prompted India Inc. to opt for terrorism insurance cover in a big way.

Written by George Mathew
Mumbai | November 23, 2015 2:20:37 am
mali, mali attack The company that runs the Radisson Blu Hotel in Mali’s capital says assailants have taken hostages in a brazen assault involving grenades. (AP Photo)

Last week’s attacks at multiple locations in Paris and the Radisson Blu hotel in Bamako have sharpened focus on the need for insurance to protect against losses due to terrorism. The importance of terror insurance was brought home by the September 11, 2001 attacks, and the 26/11 attacks in Mumbai prompted India Inc. to opt for terrorism insurance cover in a big way. The Indian Terrorism Pool, set up in 2001, paid some large claims for the first time.

But while many small and medium businesses and infrastructure projects are yet to be covered — easily the most vulnerable are central and state government buildings, including Parliament House and Rashtrapati Bhawan, and the Indian Railways, which have no insurance at all.

What is terrorism insurance? Who should be covered by it?

Worldwide, terrorism insurance provides coverage to individuals and businesses for potential losses due to acts of terrorism. Before the 9/11 attacks in the US, standard insurance policies included terrorism coverage as part of the package. Now, terrorism coverage is generally offered separately at a price that more adequately reflects the current risk. Ideally, all big and small companies, infrastructure projects, schools, colleges, hospitals, government and private buildings, ports, hotels, stadiums and all business activities should be covered by terrorism insurance.
Property damage to buildings from a terrorist attack may include claims for business interruption — which means the insured can claim for loss of business after terror.

How common is terrorism insurance cover in India? Which corporate and government buildings are covered?

Plants owned by nearly all top corporates are covered, especially around Mumbai and in the border areas in the northwest of the country. Large energy companies such as ONGC have various types of insurance and terrorism insurance. Some of the large infra projects such as Metro projects, ports, airports and flyovers, have started taking terror insurance cover.

Oddly, however, government buildings don’t have any insurance cover, leave alone terror insurance. Mantralaya, headquarters of the Maharashtra government, which was devastated by fire in 2012, had no insurance cover — and the renovation was done with taxpayers’ money. Central and state government buildings, including Parliament and Rashtrapati Bhawan are not insured. Insurance officials say the issue is the valuation of these properties — which runs into thousands of crores. Rather, if something happens, the government provides for restoration from the budget.

The Railways, which has to deal with accidents, has its own insurance, and doesn’t buy outside cover. Experts say all government properties, except those belonging to the defence services, should ideally be covered by insurance.

What is the Indian Market Terrorism Risk Insurance Pool? What is its size, and how does it work?

The Terrorism Risk Insurance Pool, formed as an initiative by all non-life insurance companies in India in April 2002 after terrorism cover was withdrawn by international re-insurers post 9/11, is adequate for any eventuality, as its size has crossed Rs 4,500 crore. The pool capacity per location has been increased to Rs 1,500 crore from Rs 1,000 crore. New add-on coverage for start-up expenses and alternative accommodation has been included in the pool coverage. Premium rates for terrorism cover, which were revised upwards from April 2009 after the losses reported in 26/11, were reduced from April 2012.

What kind of premium, globally and in India, do terrorism insurance customers normally pay?

Premium on terror insurance has remained soft in the last two years. According to the Insurance Regulatory and Development Authority of India (IRDAI), the industry regulator, the pool’s premium income has declined from Rs 482.53 crore in 2012-13 to Rs 471.13 crore in 2013-14. The claims paid by the pool during 2013-14 was Rs 2.22 crore. This is because after the Mumbai attacks in 2008, no major losses were reported to the pool. Insurers don’t expect premiums to rise significantly after the terror attacks in Paris, as there was no damage to buildings or infrastructure. However, this may not be the case the next time.

Is it common for individuals to take terrorism insurance cover for their homes or businesses?

Even in Mumbai, which has seen several terror attacks, people haven’t started taking terror insurance cover for their homes. Insurance circles say it makes sense for big residential complexes in metros to take terror cover. Schools, universities and hospitals have been attacked in various countries, and such institutions should consider taking insurance cover in India as well, they say. While small and medium businesses have not opted for terror cover so far, insurance sector officials say this is likely to happen sooner than later.

What’s the global cost of terror activities?

The latest annual Global Terrorism Index released by the Institute for Economics and Peace, said that in 2014, acts of terror cost the world US $ 52.9 billion. How much of the damage was insured is not known. The report calculates the value of property damage and the cost of death and injury, but doesn’t factor in the ongoing cost of damage to travel infrastructure or rising insurance premiums.

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