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Important changes to Terrorism Insurance Scheme

Source: Asia Insurance Review | May 2017

Effective this July, Australia’s Terrorism Insurance Scheme has been changed to provide certainty around coverage in the event of a Declared Terrorist Incident (DTI) involving biological or chemical material, and extended to cover mixed-use/high value buildings. Dr Christopher Wallace from Australian Reinsurance Pool Corporation (ARPC) elaborates.

Important Changes to the Terrorism Insurance Scheme

Terrorism losses involving biological or chemical material will have certainty of cover under the changes to the Terrorism Insurance Scheme, effective 1 July 2017. These changes will see the definition of a terrorism exclusion or exception in an eligible contract now include acts described as “chemical”, “biological”, “polluting”, “contaminating”, “pathogenic”, “poisoning”, or words of similar effect.

   In addition, mixed-use buildings with at least 20% commercial occupancy and high value buildings with a sum insured in excess of $50 million will also be covered under the scheme, effective 1 July 2017. Previously these risks were excluded from cover and property owners, where possible, would purchase private terrorism risk insurance cover. However, private sector insurers generally exclude terrorism risk on residential buildings with a building sum insured above $50 million, exposing a significant gap in terrorism risk coverage. 


While many insurance contracts contain a range of general exclusions for losses from chemical, biological, pollution or contamination, doubt exists as to whether these exclusions constitute terrorism exclusions as defined by the Terrorism Insurance Act 2003 (TI Act) because they lack words like ‘terrorism’ or ‘terrorist’. 

Clarifying that Scheme covers eligible terrorism losses involving biological or chemical material

The TI Act operates by overriding terrorism exclusion clauses in eligible insurance contracts to the extent that the losses excluded are eligible terrorism losses arising from a DTI. This requires insurers to meet eligible claims in accordance with the other terms and conditions of their policies. Insurance companies can then reinsure the risk of claims for eligible terrorism losses through the Australian Reinsurance Pool Corporation (ARPC) by paying premiums to the corporation.

   It is important to have certainty of cover should a DTI occur whereby a terrorist uses a chemical or biological weapon. Up until now, that certainty has not been present.

   In order to remove doubt around whether losses attributable to these types of terror attacks are covered under the Scheme, and fill the gap in coverage that existed due to many insurance contracts excluding cover for these types of losses, the TI Act has been amended to extend the definition of a terrorism exclusion or exception in an eligible contract to include acts described as “chemical”, “biological”, “polluting”, “contaminating”, “pathogenic”, “poisoning”, or words of similar effect. 

Amendment to Act applies to eligible insurance contracts

ARPC initiated modelling work in collaboration with the Department of Defence, Bureau of Meteorology and Geoscience Australia to determine potential losses from a biological or chemical event in a major city.

   The results from this modelling work indicate that there is the potential for extensive damage and major losses depending on the material released, location and atmospheric conditions. It is therefore prudent to clarify that losses attributable to terrorist attacks that use chemical or biological means are covered by the scheme.

   The amendment to the Act applies to eligible insurance contracts in force at that time, whether made before, at or after 1 July 2017.

Extending the scheme to include Mixed Use and High Value Buildings

A second considerable gap existed in Australia’s Terrorism Insurance Scheme, with the ARPC excluding coverage of buildings that are “wholly or predominantly used for personal, domestic or household purpose,” and private sector insurers generally excluding terrorism risk on residential buildings with a building sum insured above A$50 million (US$38 million) – those under A$50 million are commonly covered by commercial insurers and reinsurers.

   Finity Consulting, commissioned by the Federal Department of Treasury to undertake an analysis of the gap in coverage in 2014, found that mixed-use buildings with between 20% and 50% commercial floor space were particularly exposed.

   In the event of a DTI, mixed-use, residential, and commercial buildings in close proximity would have been treated differently under the TI Act, with some being reinsured by ARPC, some being insured by private sector insurers, and others being completely exposed and left to appeal to governments for financial assistance.

   There has been considerable expansion in the number of buildings being constructed in the CBD areas of both Sydney and Melbourne. This expansion is expected to result in an increase of 16% in the number of mixed-use buildings and a 24% increase in the number of high-rise residential buildings in these two capital cities. In an environment where securing private terrorism coverage can be difficult and/or costly, considerable risk is faced by both the property owners and the Federal Government in the event of  a DTI.

   As at 1 July 2017, this gap will be closed and the risk reduced, with the Scheme changed to include coverage for buildings in which at least 20% floor space is used for commercial purposes, and property with a building sum insured above $50 million. 

Recommendations from Treasury’s review

These changes follow the recommendations from Treasury’s 2015 Triennial Review of the Terrorism Insurance Act. The Act established the Terrorism Insurance Scheme and the ARPC to administer it.

   The clarifications will benefit insurers and policyholders.

   These changes will modernise Scheme coverage, underpin its financial strength, and ensure ARPC is better equipped to protect Australia from the eligible losses caused by terrorism catastrophe.

   Any questions on these changes can be directed to ARPC Chief Underwriting Officer Michael Pennell PSM at A 

Dr Christopher Wallace is CEO of ARPC.


ARPC Terrorism Risk Insurance Seminar

This October, ARPC will host its second annual Terrorism Risk Insurance Seminar at Parliament House, Sydney.

   The half-day event will bring together academics and experts in terrorism, cyber terrorism and risk insurance. The event will build on the success of last year’s ARPC/OECD Global Terrorism Risk Conference.

   Speakers will include;

  • Anthony Bubalo, Deputy Director and Research Director at the Lowy Institute, who is an expert on Middle Eastern issues, including Islamism, democratisation and terrorism, and was one of the most popular speakers at last year’s conference.
  • Levy West, Director of Terrorism Studies at Charles Sturt University, will also address delegates at the seminar. Mr West has lectured extensively to law enforcement, intelligence and military audiences both domestically and internationally and is especially knowledgeable in the area of cyber security.

   Delegates will hear valuable insights into current terrorism threats and mitigation measures. They will be provided an excellent networking opportunity, with a light lunch beginning the seminar which will end with drinks and canapes. For more information, please go to or email 




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