As the UK’s Motor Insurers’ Bureau (MIB) takes steps to widen coverage to include vehicles used in UK terrorist attacks, re-Insurance.com explores the different options the (re)insurance market could offer.
Following a consultation of its members earlier this year, the MIB is now planning to ballot UK motor insurers over whether to take on responsibility for claims resulting from vehicles involved in perpetrating terror attacks.
If 75 percent of the pool’s members vote in favour of taking on motor terrorism liabilities, the MIB has said it will extend its coverage from January 1 2019.
The organisation said members will have throughout May to cast their votes, with the results intended to be released in June.
In March, this publication revealed that the future of terrorism reinsurance coverage available to UK motor insurers was in question as leading reinsurers - including Swiss Re, Munich Re and Hannover Re - anticipate withdrawing cover at 1 January next year.
The move comes amidst increasing global examples of attacks using vehicles as weapons to cause terror with reinsurers increasingly reluctant to take on the terror liability as - in the UK - they provide uncapped liability to enable long-term personal injury care.
In the case of terror attacks where the number of individuals impacted has the potential to be in the hundreds, the aggregation of risk means reinsurers can be heavily impacted by one single event.
The MIB - which was set-up in 1946 to cover losses caused by uninsured drivers – has emerged as the front runner to fill the potential coverage gap if reinsurers do roll out terrorism exclusions.
The group’s consultation and subsequent ballot is being spearheaded by outgoing CEO Ashton West, who is in the process of being succeeded by group chief claims officer at QBE, Dominic Clayden.
In a statement to members announcing the ballot, West said the MIB had “received communications from or had meetings with 13 reinsurers” on the topic of narrowing terrorism motor cover in the UK; however, it also encouraged members to seek out conversations with carriers directly.
“The MIB board urges all members to have discussions directly with their own reinsurance providers to understand from them directly their views on reinsurance protection for the terrorism risk arising from the use of a motor vehicle,” West said.
But despite the momentum the MIB is gathering, questions over the organisation’s ability to provide terrorism coverage are being raised by industry figures canvassed by re-Insurance.com.
One of the major concerns is the MIB’s lack of current knowledge of the terrorism market, as well as it’s experience of low severity, high frequency rather than the high severity claims associated with terrorism acts.
Others have suggested that if the MIB – which is funded via a compulsory levy on all insurers writing motor policies – were to take control over paying claims, the end result would be premium being lost from the insurance market forever.
In addition to this, the MIB would only be able to pay claims through increasing the levy on motor insurance members – which would most likely be passed on to policyholders.
But what are the alternatives?
Many have proposed to re-Insurance.com terrorism mutual Pool Re as a solution to avoid further dislocation in the terrorism insurance market.
The state-backed terror pool has demonstrated its ability to innovate in earnest with a view to ensuring that private market solutions are fully considered already this year – exploring a terrorism triggered ILS, adding cyber terrorism and potentially non-damage business interruption triggered losses to its coverage and increasing limits purchased by a further £100mn as well as adding an additional £50mn layer to its programme.
Despite this, re-Insurance.com understands that the Association of British Insurers (ABI) - which represents the UK insurance industry - prefers the MIB solution, viewing the organisation as the path of least resistance.
For those seeking an alternative solution, parallels can be drawn between the current situation in the UK and how (re)insurance for terrorism resulting from a vehicle attack is handled in countries across the globe.
In Germany, which has an MIB-style levy in place, motor (re)insurers are lobbying the government to remove the risk and place it instead in a public-private set-up as such as Extremus, the German equivalent of Pool Re due to the the current model’s unsustainable approach to dealing with such losses.
With the MIB ballot looming, motor insurers should consider the wider implications of their votes and reflect on alternative options to motor terrorism liability cover particularly since the UK entity originally formed to manage terrorism risk of which many of them are already members, produces expert analysis and modelling designed to inform insurer’s risk selection and pricing decisions and spread the risk via a scheme specifically designed for that purpose.