Insurance implications of terroristic acts

The recent dastardly bomb attacks on the Glorietta and Megamall in Metro Manila has created a serious concern on the part of the Philippine insurance industry. Under the standard fire insurance coverage, loss or damage caused by terroristic acts are excluded and are not compensable in such incidents. However, as it cannot be easily proven that the bomb damage was caused by terrorists, it is possible that losses can be recoverable if the standard insurance policy was extended to cover against "Malicious Damage". In the absence of such proof and with no organization so far claiming responsibility for the bomb attacks then the resultant losses may be attributable to malicious acts by unknown parties and therefore recourse can be made with the insurance companies covering the Glorietta and Megamall.

As defined, terrorism is unlawful use or threat of violence against persons, products or property to further political or social objectives.

What are the implications on the insurance industry? Business establishments will certainly begin to review the terms and conditions of their insurance policies to determine if their properties are covered against this new and uncertain risk exposure. Financial institutions which have insurable interest on mortgaged properties should likewise be concerned, especially if the policies endorsed in their favor will not answer for losses caused by malicious or terroristic acts. As a matter of fact, there are reports that such requests have been made to a number of insurers.

A rash of bomb attacks or threats will also impact on business activity as situations have arisen where occupants of threatened buildings have had to rush out and return only after bomb disposal experts have searched the entire building premises to locate any bomb and defuse it on time. The losses in terms of manpower hours lost and productivity cannot be quantified.

Since January of this year, there have been at least 80 bombing incidents nationwide claiming 69 lives and injuring at least 367 people as reported by a research group. Consequently, the insurance industry has quietly assessed the prevailing situation and classified it as an "apprehensive" period and insurers are bound to exercise prudent underwriting, including premium rate adjustments.

What can business entities do to mitigate or respond in case of bomb threats (usually by telephone) or actual explosion in their premises? Firstly, senior management of the organization must be involved and committed to implement risk control measures, institute physical and procedural safeguards in close collaboration with law enforcement agencies. Contingency plans should also be in place and the proper selection and training of specialist personnel must be given priority in order to contain any crisis that may occur.

As a public service and depending on their resources and reinsurance support, many insurers are prepared to assume the new exposures and assess an extra premium charge for policyholders who request for extended insurance protection against acts of terrorism and malicious damage.