Terror tactics

As increasing numbers of tourists choose to visit riskier destinations, the issue of terrorism cover is rising further up the agenda. There is currently a mixed approach to the issue on the part of insurers, so brokers and policyholders looking for a more comprehensive cover need to ensure they get what they want. After 11 September 2001, blanket terrorism exclusions were put in place by many insurers.

However, according to Alistair Hardie, managing director at First Assist Speciality Insurance, the industry is turning a corner and many insurers now include personal injury and medical expenses cover in their policies to protect travellers caught up in terrorist acts. "According to Defaqto, there are 550 policies in the market and a good proportion of these don't have a blanket exclusion for terrorism," he adds.

Since the attack on the World Trade Center, reinsurance protection has become a key factor in exclusions. Jonathan Buttery, director of specialist travel broker Voyager Insurance Services, explains: "Before 11 September 2001, terrorism wasn't a specific insurance cover and, after that, insurers lost their reinsurance protection, hence the exclusions."

Despite this, he says policyholders have not been left in the cold, as insurers have honoured claims made by those involved in incidents abroad: "I am not aware of any travel insurer leaving an injured or deceased insured abroad following a terrorist act and they have always paid for repatriation. This is because the typical numbers involved are very small overall and they can afford to take a sympathetic stance."

Crippling claims

The industry's main concerns, however, are nuclear and biological attacks, which could affect thousands of people and cripple its ability to pay for such claims. Apart from this worst-case scenario, which still warrants exclusion in many policies, Mr Buttery says insurers are taking a more realistic approach to terrorism, especially in terms of personal injury and medical expenses cover.

He explains: "A one-off bomb is not a concern. I don't want to belittle the horrendous impact such an incident can have on people but, in terms of insurance and reinsurance, large-scale events such as nuclear and biological attacks are still a concern and, therefore, not covered."

According to figures from the US National Counterterrorism Center, of the 40,000 people killed or injured by terrorist incidents in 2005, 36% were civilians. This, combined with the fact that more holidaymakers are choosing to travel to high-risk areas, could mean more travellers are in danger.

Research by insurer LV has shown that since 2003, UK citizens have taken nearly five million holidays to destinations highlighted by the Foreign and Commonwealth Office as dangerous.

However, as Peter Hayman, managing director of intermediary P J Hayman, points out: "figures on world terrorism are on the increase but how many of those involved are tourists or travellers? I would suggest a very small number."

Although the market is moving to provide more cover to victims of terrorist acts, Mr Hayman says the situation is far from ideal and explains that it is extremely unlikely an insurer will suffer a large aggregate cost from a single event, especially considering the spread of travel insurance across the UK market. "For this reason, I am somewhat frustrated that the market has been slow to provide this cover across all policies," he adds.

Mr Hayman admits that insurers are somewhat restrained by their reinsurance arrangements, adding that some look for a higher rate - typically 1.5% on the net premiums - that he says "is not justified".

One area, however, where insurers may be let off the hook is cancellation. "In the event of a terrorist event occurring that precludes the insured from travelling, it is the responsibility of the tour operator or airline to refund or provide an alternative," Mr Hayman explains. "It should not be for the travel insurer to pick up their risk."

In fact, cancellation cover is hard to find and, according to Mr Buttery, AIG is the only insurer that offers full cover for terrorist acts, a move that he says could leave the company open to large cancellation claims.

Adapting in time

While not all insurers are prepared to take all the risks, it seems that many are adapting their policies. Norwich Union, for example, does not exclude terrorism in its travel policy and policyholders are covered for personal injury and medical expenses.

"Similarly," adds Frankie Nicholson, travel product manager at the insurer, "if they were injured due to an act of terrorism while on holiday and needed to cancel the rest of their trip, NU would pay for any unused travel and accommodation if they weren't able to get a refund from their holiday operator, for example."

LV also provides medical expenses and personal injury cover for its policyholders, although spokeswoman Emma Holyer is keen to point out that there are other risks facing holidaymakers, and so they must pay attention to FCO advice. She explains that travellers may find themselves out of pocket, as many insurers will not provide cover to those travelling against government advice.

"We do not know how many holidaymakers have been killed in terrorist attacks over the past few years," she adds. "But we do know that medical expenses and personal injury cover are really important for travellers."

Yet despite improvements in cover since 11 September 2001, policyholders may not be aware of the changes or know what type of cover they are buying.

Mr Hardie explains: "I asked our call centre staff how often people asked about terrorism cover, and they said 'virtually never'. I wonder if our awareness is connected to customers' awareness. They do care about it but do they think in the same way we do?"

This inherent lack of awareness is perhaps an item that should now be put firmly on the industry's agenda.