UK needs joined-up response to terrorism


CILA's third technical forum, which recently took place in London, agreed that the UK is unprepared for terrorist attack and must adopt a co-ordinated approach in order to deal effectively with any potential hostilities in the future. Ralph Savage reports

The Chartered Institute of Loss Adjusters' third technical forum had a broad remit, but out of it came a key message. The UK is unprepared for terrorist attack and has been resting on its laurels since the cessation of hostilities over Northern Ireland.

Only six years have passed since the Omagh bombing, and it takes recall of less than a decade to remember the devastating explosions in both London and Manchester.

However, the changing climate of international terrorism has forced the government to sit up and make contingency plans. The Civil Contingencies Secretariat is the department within the Cabinet Office created to tackle the UK's preparedness for dealing with a multitude of eventualities and it is now clear the insurance industry will be a welcome guest.

As PM revealed last week, attendees at the forum have agreed to meet with the purpose of creating a joined-up response (PM, 22 January, p1), headed by CCS financial and economic team leader Niall Creed. However, comments from around the table by government, the Association of British Insurers, CILA and the wider insurance community, made it clear that much work needs to be done.

CILA president Michael Burnett asked the question: "Is terrorism a dimension of risk we could and should plan for? If so, how best can this be carried forward to a sensible level?"

Jane Milne, head of household and property at the ABI, said the trade body has been considering insurance's role in improving resilience. "Having helped to introduce cover for things like contamination, have we now introduced a moral hazard and do we need to address that? I would like to be involved alongside government to discuss what the insurers' role might be in these events, so I think this is a very timely discussion."

Angus Tucker, CILA member and director of Deloitte's business insurance consulting division, was the first to suggest that the insurance industry could be accused of taking its finger off the pulse. "During my time with CILA, I was involved in looking after and managing our response to both city bombs in Manchester and London. This has led me to have a personal interest in terrorism issues. I have a concern that a lot of risk managers took comfort from the extension of Pool Re, with what they saw as coverage being back in the market, without understanding the cover. But chemical or biological attack is different and there is a lack of experience meaning people may well think they're covered when they are not."

'Dirty bomb' cover is available

Despite Mr Tucker's warning, cover is available for complex risks like contamination, produced by terrorist weapons such as a 'dirty bomb', according to property broker Neil Cook, commercial technician at Howe Maxted Group.

He explained that a lot of enquiries of this nature have been coming into his office recently. "About two years ago, I was asked by a consortium of Mayfair landlords to try and place contamination cover. They felt that it could happen at any time. I would like to get the point across that cover is there if you need it."

Although not wanting not to expound too much on his Northern Irish Heritage, Mr Burnett thought it pertinent to explain his experience of dealing with terrorist threats: "I have been one of the foot soldiers and through that, a process evolved for close working, almost to the extent that we found ourselves as a reserve special occupation. We've been virtually treated the same as military. There were times when we had to check under our car every day to see if there was a bomb there. The dimension that we have here is so huge that I'm concerned whether it's possible to find a solution and plan for everything."

Mr Creed qualified the secretariat's rules on responsibility. "The Civil Contingencies Bill begins with the statement that responsibility lies with individual companies themselves." He added: "In terms of the public sector, the responsibility for disaster recovery planning lies with the local authorities. It's also a departmental responsibility, but that is about the provision of public services. The view we take is the responsibility of firms lies with themselves. All we can do is provide advice and try to encourage them to adopt business continuity planning."

But Mr Cook argued there is a general reluctance to act on the government's advice: "The response rate to this is minimal. There never will be enough money in the pot and, therefore, when something does happen there won't be enough to pay it. Rates will go up tenfold. People are concerned about this, but they are not prepared to pay for it. If there were compulsory requirements to adopt BC planning in an insurance policy this would drive the client away. Everyone's complaining that companies are going out of business because of failing to find compulsory employers' liability insurance; this would be another." He warned: "Companies aren't strong enough to take on that additional financial commitment and pay premiums for something, they believe, might never happen."

It is true to say that since 1998 and the signing of the Good Friday Agreement - although this was followed four months later by the Omagh bombing - domestic terrorism has been almost non-existent. Andy King, deputy president of CILA and director of Pricewaterhouse Coopers' insurance claims services division, said the major impact of this peace has been public apathy. "A lot of people thought the threat had simply gone away. If this unintentionally moved contingency planning to the back burner, it could have caused this mindset coming in. Obviously 9/11 has changed perceptions I hope."

Business continuity survey

Mr Tucker added that his firm carried out a survey some months prior to the attack on the World Trade Center. "In summer 2001, Deloitte undertook a survey of business continuity planning - 40% of large companies had plans in place and the rest did not. What was also interesting, was that of the 40% who had plans, well over half had no idea where they were and hadn't dusted them off for some time."

A great deal has been made of how to deal with the physical losses caused by bombs, or indeed severe weather. However, Mr Tucker pointed out that, like it or not, coping with human trauma is a growing concern for all.

Pointing to the aftermath of the WTC attack, he explained: "The emergency services were totally overwhelmed, the hospitals only took in 'physically injured' people. If you were in the area but you were not physically injured, you were literally left to your own devices. Many people would have been fine immediately afterwards, but two or three hours later, shock sets in. This happened to a lot of people."

He illustrated the psychological impact of terrorist attacks by referring to the falling estimates of fatalities in Manhattan. "Transport was suspended, a lot of people had to walk home, suffering trauma and perhaps not even returning home until 12 or 24 hours later. This has to be considered in a contingency plan."

Mr King agreed, highlighting the fact that having a BC plan is irrelevant if staff are too frightened to return to work. "There was a similar issue after the earthquakes in Turkey. In terms of getting businesses up and running, one of the big problems was that people had simply left the area. There was a sense of gloom and despondency. Also, it's not easy to get a factory up and running when there's no power or transport."

Mr Creed was quick to point out, however, that utilities are the only private firms included in the Civil Contingencies Bill. Responsibility for keeping power, water, and communications going in the event of terrorist attack, rests firmly on the shoulders of government.

Tragic as they are, acts of terrorism do serve as a wake-up call to industries like insurance, and Ms Milne believes that even Pool Re, the government's last resort insurer, has had to rub its eyes a little. "One of the interesting things about the introduction of contamination cover to Pool Re, is that - unlike other areas of insurance - if you are a member of Pool Re, you are obliged to offer a quote, even if you think it's a horrendous risk."

She added that in January 2003 competitive pricing was introduced rather than the previous tariff approach for Pool Re and this exposed underwriters' lack of experience. "You know Canary Wharf is more of a target than a bicycle shop, but we have always said we don't understand enough about terrorism to price properly. We are a bit further forward than we used to be - but not that much. There's a huge problem for underwriters at the moment to differentiate between high-risk targets and low-risk ones."

Pool Re is in the process of reviewing its funding structure in the light of heightened risks and Ms Milne indicated that it may be about to take on a mutual status. "I don't know if it's come to a conclusion yet, but working with its actuaries has shown it is looking at the terms of a mutual where everybody is treated the same. Treating everyone the same means on the basis of the risk they present to the pool."

So what should everyone expect from the insurance industry in the event of terrorist attack on UK soil? Mr Burnett noted that after the Manchester city centre bombing in 1996, CILA members consulted with one another to plan a collective response. "After the Manchester bombing, there was a collective effort between CILA and the commercial adjusters. And that's no criticism of government, but when this type of scenario occurs, we need to consult because they won't get in. Collectively we mustn't lose any time on planning as there will be elements in contingency planning that government hasn't legislated for. There has to be some kind of operational plan - a single response."

Total write-off

When Mr Tucker warned of the need to consider contamination, Mr Creed explained that anthrax has rendered buildings in the US uninhabitable. "Contamination does create problems," he said. "The Americans have actually written some buildings off because of anthrax. They have decided that you can't tell when a building is completely decontaminated and obviously that's a total loss."

The CCS, along with CILA, the ABI and possibly the Association of Insurance and Risk Managers, will be meeting in early February as a result of the discussions that took place around the table. Progress is likely be slow, but the government's commitment to the 'war on terror' is manifested in the resources it has devoted to the Civil Contingencies Bill. Mr Creed declared: "We want things to be up and running as quickly as possible.

That's why we have focused on the utilities. In the recent US power outage, some households got their electricity back online before the water companies did. The trouble lies in not having an exact scenario and the question is where do we plug the insurance industry in?"


Chair: Michael Burnett president, Chartered Institute of Loss Adjusters

Graham Cave executive director, CILA

Neil Cook commercial technician, Howe Maxted

Niall Creed Cabinet Office, Civil Contingencies Secretariat

Andy King deputy president, CILA

Jane Milne head of household and property, Association of British Insurers

Angus Tucker honorary secretary, CILA.

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