Australia’s terrorism insurance scheme was designed to protect Australia’s commercial property sector from the global withdrawal of terrorism insurance cover in the wake of the terrorist attacks of 2001 in the United States.
The scheme is established by the Terrorism Insurance Act 2003 (the Act) which operates by overriding terrorism exclusion clauses in eligible insurance contracts, to the extent that the losses excluded are eligible terrorism losses arising from a declared terrorism incident. The scheme provides terrorism reinsurance, generally for commercial property, associated business interruption and public liability classes of insurance.
Under the Act, the scheme is administered by the Australian Reinsurance Pool Corporation (ARPC), which commenced operation on 1 July 2003. The Act requires that at least once every three years, the Minister must prepare a report that reviews the need for the Act to continue in operation. Previous reviews were conducted in 2006, 2009 and 2012.
The 2015 Review considered the rationale of the scheme, the continuation of the Act, the ownership structure of the ARPC and ensuring the financial sustainability of the scheme. The Review concluded that market failure still exists in the Australian terrorism reinsurance market and that the ARPC should remain in place under the current ownership structure and administration. The Review makes 10 recommendations which provide for a strategic realignment of the depth and breadth of coverage for terrorism risk insurance and the role of the ARPC for both existing activity and emerging coverage and functions.