“The Conversation” Article on G20 & Terrorism

conversationThe popular website The Conversation approached me to write an article on the insurance risks around Brisbane hosting the G20 summit. The article was published yesterday and I reproduce here for your convenience. To view the actual published piece please click here.

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When the G20/G8 summits moved on from Toronto in 2010, they left an US$11 million bill in business compensation claims. Brisbane will host the G20 Summit over the weekend of 15th and 16th November 2014. To minimise the effect of preparations on CBD businesses, Friday 14 November has been declared a public holiday for people working in the Brisbane local government area.

A major rally is being planned for Saturday 15th at 11am starting at Emma Miller Place (Roma St) and subsequently march past the G20 summit to Musgrave Park. Other protests may occur as well.

With so many international leaders attending so soon after the decision of many governments to take military action in Iraq against ISIS also has the potential for some political protest of some sort.

All of this creates an increased risk for residents and business owners.

Starting with the public holiday. This will result in a loss of productivity for businesses effected. Should there be a loss of turnover and or profit as a result this loss is not insurable. It is deemed to be a political and or business risk and something no designed for insurance to cover. Similarly, any business disrupted by protestors simply marching by will not be covered for the same reason.

Should any demonstration turn violent then insurance is likely to be there for those with insurance in place. Losses in Australia as a result of riot and civil commotion and or terrorism changed significantly following the attack on the World Trade Centre in 2001.

The current position is that there is not an industry standard exclusion for terrorism, but most are very broad in their application. This means that as the demonstrations around the G20 would be regarded as political the exclusion would apply. Having said that this, with commercial premises, Insured’s pay a terrorism levy that goes to fund a Federal Government Terrorism Pool (the “Pool”), which is designed to provide cover.

In cases where the Federal Government (there is a specific process to be followed) declares an event an act of terrorism, claims for property damage and business interruption losses would be met via a business’s insurance policy. Any claim would be subject to the terms; conditions, sums insured; limits and sub-limits of liability that the policy contains just like say a fire claim. Where the loss is in excess of the insurers retention under the Pool arrangement that is $100,000, the Pool would pay the balance via your insurer.

If a business was not insured then they would not have access to the Pool. Like any other event they would be treated as uninsured.

With home and contents insurance the insurance industry carries the risk. As with business insurance, to be protected the owner of the home or contents has to have a current insurance policy at the time of the loss or damage with the maximum amount payable being the sum insured.

Large Commercial Strata needs special attention. With commercial strata, the insurance that is arranged attracts a terrorism levy, and it works the same as other commercial insurance. With residential strata, the policies typically provide terrorism cover underwritten by the insurer issuing the policy, but not always. Even then, there is no standard cover where the sum insured on the complex is $50 million or more. In such cases special standalone terrorism insurance is required.

If you are in any doubt about your own insurance arrangements you should speak with your insurance broker/adviser before the G20 starts.

The whole issue is difficult in that it can all be bound up in politics. There can be a disconnect between the wording of the exclusion and any government’s willingness to declare an event as an act of terrorism is complicated. Some are of the opinion a government will not rush in to a declaration for a couple of reasons. The first is that it could damage (further damage) tourism to this country that such an event would cause.

Secondly, the Federal Government is taking out a significant amount of dividends from the Pool (a hidden tax on insurance) and this “dividend” may have to be reduced if the pool was seriously eroded by claim payments. For example, when the Cronulla Riots occurred in 2005, this would have fallen under most terrorism exclusions but the government did not declare it as an act of terrorism and so insurers met the losses, (material damage and business interruption) as occurring as a result of the insured peril: riot.

At the end of the day, an insured, other than very high value residential strata which needs special attention, should be covered for damage and disruption caused by riot or an act of terrorism during the G20 summit if they have insurance in place. However they will not be covered for closure or disruption due to the hosting of the event itself

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