Insurance lessons from the Christchurch attack
In 2015, following the tragic terrorist attack at the Lindt café in Sydney, we wrote that “the attack at the Lindt café … serves as a chilling reminder that the unimaginable can happen anywhere” (Cover to Cover, Issue 4).
Four years later, the unimaginable happened here in New Zealand, with an armed gunman attacking two Christchurch mosques during Friday prayers, killing 51 people. The government, private sector and community rushed to support the families of the victims. The Prime Minister gave assurances that support from ACC would be available and banks established dedicated accounts for donations. More than $15 million has been raised to support those affected by the attacks.
Sharia-compliant life cover
The insurance sector also promptly made statements supportive of the victims and their families, with a number of insurers announcing that they would pay out claims on any life insurance policies held by the victims and would not rely on terrorism exclusions to deny cover.
It is unclear, however, whether any life insurance claims have been received. There is reason to believe that few, if any, of the victims may have held life policies with New Zealand insurers. This illustrates a gap in New Zealand’s insurance market. Many Muslim scholars regard traditional insurance as being haram, or contrary to Sharia law. Muslims may enter into an alternative, co-operative arrangement known as Takaful, which is widely available in larger markets such as the UK, but we know of no domestic New Zealand providers. Some brokers may arrange foreign Takaful cover for New Zealand residents, but this does not appear to be widespread. There is an opportunity for insurers and brokers to arrange and offer appropriate products for New Zealand’s Muslim community.
Terrorism insurance in New Zealand
The insurance response following the attacks also drew attention to the general unavailability of terrorism insurance in New Zealand. While insurers advised that they would not rely on terrorism exclusions in this instance, most insurance policies exclude terrorism and it is not clear that insurers would take such a permissive approach in the event of a larger loss that affected a significant number of insureds. This raises the question of whether the New Zealand government should follow the example of the United States and Australia and offer a terrorism reinsurance scheme to support the private market.
Government reinsurance schemes for terrorism developed after the September 11 attacks in New York, when private reinsurers largely withdrew from the market for terrorism cover. Primary insurers then followed suit by excluding cover for terrorism events to protect themselves from potentially significant losses in the absence of reinsurance for this risk.
With terrorism insurance unavailable post-September 11, lenders and investors held back and economic development in the US slowed. To address this, the US Congress enacted the Terrorism Risk Insurance Act, known as TRIA, to provide a form of government reinsurer.
A number of other countries followed suit. Australia, for instance, has legislation that overrides terrorism exclusion clauses when a terrorist incident is declared. Private insurers may then claim reinsurance payments from the Australian Government. Government reinsurance for terrorism is also available in France, Belgium, Germany, South Africa, Denmark, Netherlands, Russia and Spain.
Prior to the Christchurch attack, New Zealanders may have seen little need for our government to offer or support terrorism reinsurance. Perceptions of terrorism risk in New Zealand must now, regrettably, have changed and these issues should be reconsidered. We see no reason in principle for the New Zealand Government not to follow the lead of the nations referred to above and ensure that New Zealanders benefit from the same terrorism cover that is available elsewhere.
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