Part 1: Counter-terrorism Chapter 4: Miscellaneous Section 21: Terrorism reinsurance
This section amends section 2 of the Reinsurance (Acts of Terrorism Act) Act 1993 ("the 1993 Act"). The 1993 Act was introduced after the insurance industry withdrew cover for terrorism related damage due to the IRA bombing campaign on London in the 1990s. Businesses were left unable to protect themselves from the costs of future attacks and this put the competitiveness of the UK economy at risk. To address this, the then Government worked with the insurance industry to establish a Government-backed reinsurer of the risk of damage to commercial property caused by an act of terrorism – the Pool Reinsurance Company Limited, otherwise known as Pool Re. Government support was provided through a Government guarantee of Pool Re, ensuring that it would still be able to cover claims resulting from terror attacks even if its own reserves were depleted. Section 1(1) of the 1993 Act provides parliamentary authority for the Government to meet any financial obligations arising from this guarantee. Section 1(2) requires a copy of the agreement with Pool Re to be laid before Parliament; the current agreement, dated March 2015, is available here.
	As a reinsurer, Pool Re enables insurers to more efficiently manage their terrorism risk. Insurers agree to take on businesses’ terrorism-related financial risk in exchange for a premium. The insurers then cede some of the liabilities of this risk, as well as a share of the premiums, to Pool Re. This enables insurers to provide a greater amount of terrorism insurance cover than they would otherwise be able to afford to by reducing their liabilities following a terror attack.
	Section 2 of the 1993 Act sets out the scope of the reinsurance arrangements to which the Act applies. Under section 2(1) such arrangements can only offer reinsurance cover for costs that are contingent on physical damage to property following an act of terrorism, or any loss that is consequential on such damage. So, for example, the Pool Re scheme would cover bomb damage to commercial premises, including the consequential loss to the business arising from the need to close the business for a period to make good the damage. The extension of the terror threat to cover not only bomb attacks causing physical damage to commercial property but also the use of vehicles and knives targeting individuals has led to a gap developing in the cover that Pool Re offers. In the case of the June 2017 terrorist attack on Borough Market, there was limited physical damage to the market, but traders lost business as a result of the week-long closure of the market to enable the police to investigate the crime scene. As the losses incurred by Borough Market businesses were not consequential on physical damage to commercial property, any terrorism-related insurance backed by Pool Re and held by those businesses may not have covered such losses. While Pool Re is not the only reinsurer of terrorism risk in Great Britain, this gap means that some businesses are potentially uninsured for any business interruption losses linked to a terrorist attack but that were not as a result of physical damage.
	To address this gap, subsections (2) and (3) amend section 2 of the 1993 Act the effect of which is to allow Pool Re to provide reinsurance cover for any financial loss suffered by businesses that are not directly caused by physical damage to property, although still the result of an act of terrorism (defined, by section 2(2), as "acts of persons acting on behalf of, or in connection with any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto").