Non-damage business interruption is a growing problem following terrorist incidents.
The death of an Amesbury resident and hospitalisation of her partner from contact with the nerve agent Novichok, has once more dragged the cathedral city of Salisbury into the headlines. Having barely recovered from the attack on the ex-Russian spy Sergei Skripal and his daughter Yulia, the town again finds itself at the centre of an intense operation to identify the source of the contamination.
Even before this latest incident, areas of Salisbury had been cordoned off for months and the restaurant where the Russian couple dined has remained closed. Visitor numbers to the town were down by as much as 20% following the attack, according to Reuters, while nine businesses have folded, and footfall in the immediate area of the attack slumped by up to 80%. Wiltshire police have put the security cost of the attack on the Skripals at around £7 million, while the clean-up operation is likely to run into tens of millions of pounds. The latest incident is only likely to exacerbate the cost and disruption in Salisbury and the surrounding area.
A new threat
Given the impact created by a small amount of nerve agent, has the use of such a dangerous chemical created a new potential threat for terrorists looking to inflict maximum numbers of casualties and disrupt daily life? Jerry Smith, a former chemical weapons inspector and now a director at RameHead Consulting, thinks that’s a possibility: “Terrorists will look at Salisbury and see how such a small amount of nerve agent was used and look at the response that was required, the disruption and the costs involved in the clean-up.”
Terrorists have seen what a chemical threat can achieve, making the theft and use of chlorine or another toxic industrial chemical – substances that are routinely transported – more likely.
Could Novichok itself – the nerve agent identified as the substance used in Salisbury – be a viable weapon for criminals and terrorists? It’s not impossible says Smith: “The UK's Prime Minister put up the option that it was either a Russian government sponsored attack, or that they had lost the material. The UK government clearly believes there is a possibility that the Russian government could have lost this material to a non-state actor – who might be criminals or terrorists."
It is, though, a substance that is not easy to get hold of, store, transport or deploy, cautions Smith. "Novichok is right on the edge of the spectrum when you talk about its use. We were aware of it but it wasn't seen, on the military level, as a sufficient threat." A more likely scenario, adds Smith, is the potential for terrorists, having seen the significant physical and psychological impact on the general public of a chemical attack, to try to produce a similar result with an easier to obtain substance. "Terrorists have seen what a chemical threat can achieve, making the theft and use of chlorine or another toxic industrial chemical – substances that are routinely transported – more likely."
In June for example, German authorities arrested a Tunisian man accused of manufacturing the deadly toxin ricin – found naturally in castor beans – with the intention of using it in a biological attack. “We have seen a number of incidents in the US and elsewhere involving more commonly available chemicals,” says Smith, “where an immediate theft and use is probably a more likely situation.”
Standard terror insurance is not enough
Both of the Novichok incidents join other security related events, including last year's London Bridge attack, in demanding more from the terrorism insurance that is currently available. “Five years ago, it was enough [for companies] to purchase a standalone property damage terrorism policy," says Rich Halstead, Terrorism Line Underwriter for Hiscox London Market. "While it is still relevant to buy that cover, it only solves a part of a broader spectrum of security related events.” Halstead adds: “The Salisbury attack was malicious in nature and would not be covered by most standard terrorism policies, or even under the new malicious attack or active shooter policies where there is still typically an exclusion clause for the use of nuclear, chemical, biological and radiological (NCBR) material."
Five years ago, it was enough to purchase a standalone property damage terrorism policy. While it is still relevant, it only solves a part of a broader spectrum of security related events.
Businesses can however access specialist NCBR insurance policies and there has recently been heightened interest in such protection says Halstead. “Businesses would be covered for an attack like Salisbury under a Hiscox NCBR policy. We offer physical damage protection in the event of an NCBR attack and also cover business interruption and the extra expense for changing location, as well as the clean-up costs which can be significant.”
It’s the business interruption element caused by events such as Salisbury and London Bridge that is really challenging businesses says Halstead. "It is prompting insureds to think hard about what their real exposures are and whether they have appropriate coverage, particularly when it comes to non-property damage business interruption." The restaurant at the heart of the Skripal investigation is still closed (at the time of writing) and, as a consequence, the owners are absorbing a loss of revenue as well as facing the subsequent loss of attraction. Traders in London’s Borough Market also faced substantial trading losses with the area cordoned off and closed for seven to ten days after the London Bridge terrorist attack in June 2017.
Non-property damage BI
In response to this growing area of exposure to non-property damage business interruption, Pool Re, the government backed terrorism scheme, has announced that it hopes to soon offer non-damage BI cover once the law is changed. In March, 2018, Julian Enoizi, Chief Executive, Pool Re, said: “We welcome and applaud the Government’s commitment to amend the 1993 legislation to allow Pool Re to be the first of the global terrorism pools to overtly extend its cover to include terrorism related non-damage business interruption.” While this will help businesses manage their exposure in conventional terrorist attacks, Halstead says it is not yet clear how non-physical damage business interruption will be applied when it comes to NCBR risks.
It is prompting insureds to think hard about what their real exposures are and whether they have appropriate coverage.
In the meantime, the authorities and businesses will wait anxiously to see if the Salisbury incidents spark off other copycat incidents using biochemical materials. “With extensive and long term disruption caused by the original attack and now further problems following a second contamination, public unease is likely to generate interest from criminal or terrorist gangs,” says Halstead. “For businesses, it further underlines the importance of managing the risk of non-damage business interruption.”
