ARPC simplifies reinsurance for terrorism risks

Insurers must cover eligible policies in a declared terrorism incident, though scheme participation is voluntary.

Since the inauguration of Australia’s Terrorism Insurance Act (now Terrorism and Cyclone Insurance Act), the Australian Reinsurance Pool Corporation (ARPC) accumulated 228 insurers and AU$364m in gross written premiums, as of June last year.

In Australia, the Act was enacted in 2003 after insurers withdrew terrorism cover post-9/11, according to WTW’s Terrorism Pool Index 2024.

From there, the ARPC was formed to administer terrorism insurance, covering eligible losses for commercial property, business interruption, and public liability. The scheme excludes life, personal injury, and workers' compensation. 

Insurers can reinsure terrorism risk with ARPC, and claims are funded through a combination of insurer retention, retrocession, and the Commonwealth guarantee, totalling over $14b.

Participation in the scheme is voluntary for insurers, but they must provide cover for eligible policies in a declared terrorism incident. Most commercial insurers opt for ARPC reinsurance. Insureds can also buy terrorism coverage from private insurers without the need for a local policy. 

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ARPC provides standardised reinsurance agreements for insurers and offers guidance for obtaining coverage. Claims are initially handled by property insurers, who may seek recovery from ARPC.

The Terrorism Pool Index 2024, a compilation of government-sponsored reinsurance schemes from International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP) member countries, is in its fifth annual edition, produced by WTW in collaboration with IFTRIP nations. 

IFTRIP, chaired by the U.S. Federal Insurance Office (FIO), facilitates global cooperation among sovereign-backed terrorism reinsurance pools. It fosters relationships, information exchange, and joint efforts against terrorism.

IFTRIP, established in 2016, focuses on enhancing international collaboration in terrorism risk insurance. It has successfully achieved this goal and is expanding its scope to address emerging risks like cyber and CBRN threats. The current edition features summaries of member nations' risk transfer mechanisms and insights from WTW's senior leadership.