Risk pooling with state-backed funds presents a “unique opportunity” for the terrorism market to close the protection gap for emerging risks from emerging triggers such as cyber and non-property damage threats, according to JLT.
In a major report on the state of the terrorism (re)insurance market released today the broker said the evolving nature of threats from terrorist violence, including the rise of lone wolf attacks, meant that SMEs in particular had been left without cover as current coverage does not provide cover for non-physical damage losses.
And with the likelihood of attacks only set to increase as Islamic State fighters from Syria disperse and Al Qaeda rebuilds, the limits of current cover have been exposed, putting pressure on the segment’s reinsurance market.
JLT said as primary carriers broaden their insurance options to respond to the demand for wider coverage, state-backed terrorism pools are likely to be crucial to further development of the market.
“Pools have a unique opportunity to increase penetration and better position economies to recover from future attacks given their scale and influence in the market, along with the direct distribution channels they have built,” JLT said.
“Certain pools have already taken bold steps to narrow protection gaps by extending coverages to include new risks such as cyber and non-property damage losses. Over time, this could stimulate further competition in the private market and increase the supply of new forms of cover as more primary and reinsurance carriers offer additional capacity to meet building demand.”
Earlier this year, the state-backed UK terror mutual Pool Re extended its cover to include a cyber trigger and is in talks with the UK government to expand to non-physical loss damage.
The broker also noted that while terrorism underwriters had begun to include some coverage offerings for cyber-related risks, the market remained in its infancy as the complexity of the risk, as for other segments, was proving challenging to pin down to a single class.
“Capacity within the terrorism market is widely restricted to cyber-enabled property damage, with solutions for non-damage risks often found in the specialist cyber market. Whilst this fits neatly into pre-existing frameworks (the approach traditionally adopted by the sector, often to the frustration of buyers) more sustainable and client-friendly solutions need to be found for the long term that do not involve restrictive exclusions,” JLT said.
“Given the broad risks and potential limits involved, state pools are playing an increasingly active role in offering coverage for cyber terrorism, although questions remain around the attribution and certification.”