The insurance of terrorism risks (With Julian Enoizi)

Welcome to Insurance Covered! The podcast that looks at the inner workings of the insurance industry with the help of expert guests. This episode we are joined by Julian Enoizi, CEO of Pool Re, and we will be looking at terrorism insurance.

Julian starts by explaining how and why Pool Re was set up. In 1993 following a number of terrorist attacks the insurance industry was no longer in a position to offer reinsurance due to the increased frequency of attacks and lack of capital to pay out claims, as a result terrorism insurance policies were largely withdrawn from the market, which then caused knock on effects with regards to bank loans and construction projects. Without the added layer of protection insurance provided, large projects were put off and the economy suffered. As a result, the government intervened in a joint public and private sector scheme to provide loan facilities to cover terrorist attacks, known as 'Pool Re'. The idea is that following a terrorist attack if there was not enough money made from the premiums taken to pay out all the claims, the government would provide a loan to cover the additional costs, ensuring claims were paid and the insurance market was protected.

He goes on to explain how Pool Re works commercially. Pool Re is a mutual insurer, a commercial business will buy terrorism insurance from its property insurer. They will then reinsure the terrorism part of the policy into Pool Re and pay a premium for that terrorism reinsurance, which is collected by Pool Re.  Annually they collect £320 million in premiums from 150 different insurers across the United Kingdom. That pot builds up so that when an attack occurs the funds are there to pay out on the policy. In the 27 years they have been operating they have c. £6.5 billion, after paying out on 17 different events. If that pot was exhausted the government would step in and loan the money to pay out on claims. Julian goes on to discuss some of the incidents that have occurred and how terrorism threats are changing, noting cyber attacks as a new form of terrorism.  

We then go on to discuss Pool Re solutions, a way for Pool Re to engage with academics and the market to develop a consensus of what is or isn't a terrorist act and therefore what can and cannot be covered. He goes on to explain that Pool Re solutions is like a consulting arm of the company that on a global scale helps model and manage these risks.

We finish by looking at the current COVID-19 pandemic and whether a similar government backed insurance model could work to protect against losses that have arisen from the pandemic and subsequent lockdowns.

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