Insuring against terrorism: First Take Cover

The meltdown at Heathrow airport caused by the alleged terrorist plot last August led to thousands of stranded travellers desperately calling their insurers to see if their travel policies covered them for such an eventuality. With the root cause of the chaos allegedly terrorist in nature, the answer in the vast majority of cases would have been a resounding no.

Hiccups in your holiday plans that are caused by acts of terrorism are what the travel insurance industry likes to refer to as "an exclusion". Should a terrorist act cause your flight to be delayed or even your holiday to be cancelled, your insurer is not obliged, under the terms of most policies, to reimburse you.

In the UK, the travel insurance market is worth an estimated £600m annually. Yet, despite the vast sums involved, coming up with a product that offers recreational holidaymakers comprehensive cover against terrorist acts is something that is proving elusive.

"The popular view is that insurance premiums and policies are fixed by actuaries sitting in rooms with calculators," explains Stephen Thorley, managing director of Travellers Protection Services, an independent travel insurance retailer that sells products through, among others, Ryanair and P&O. "While this is a rather exaggerated view," says Thorley, "terrorism is, by its nature, wildly unpredictable and that makes it very difficult for us to apply any science to it."

But things are changing. The Association of British Insurers estimates that around 50 per cent of travel insurance providers now offer policies offering some degree of terrorism cover. "Increasingly, more and more insurers are offering terrorism cover for medical expenses," says the ABI's Malcolm Tarling. "No insurer that values their reputation is going to leave you stranded if you get injured in a terrorist attack while on holiday."

Mr Tarling advises consumers to check the various stipulations before purchasing a policy and make sure the level of cover matches your needs. "If you're going skiing in the Alps, [terrorism cover] might not be as important as if you are travelling to, say, Turkey or Jordan," he says. Tarling believes the insurance industry is coming to view terrorism as an everyday risk, adding that the inclusion of terrorism cover no longer means a vastly inflated premium. "In years gone by insurers placed terrorism in the same category as war. The risk of injury was significant and the premiums reflected that. Today, in the event of a large-scale terrorist attack," he says, "the financial implications are likely to be considerable, but the load is being shared by an increasing number of companies."

Where terrorism exclusions do still exist - in claims not of a medical nature - Stephen Thorley believes the industry "needs to be as sympathetic as possible". One way of doing this is to offer additional cover in increments, what Thorley refers to as "working around the edges" of the terrorism debate. Following the alleged terror plot at Heathrow, for example, TPS was one of a number of companies that extended cover for valuables placed in the hold, a clause not usually contained within most policies.

If you do specifically want terrorism insurance and a potential insurer doesn't offer it, Mr Tarling advises consumers to "vote with their feet. Shop around because there are plenty of places where you can buy terrorism cover as standard on the policy."

So might we one day expect to see policies offering a terrorism provision for all aspects of our holiday? "It would need to be an industry-wide move," says Mr Thorley. "While insurers could put £2 or £3 on a premium, for example, this is a sector in which the difference of a pound or two can greatly influence the policies consumers choose."