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U.K. terrorism bill proposes ban on insurance coverage of ransom payments

Posted On: Dec. 7, 2014 12:00 AM CST

U.K. terrorism bill proposes ban on insurance coverage of ransom payments

Insurers say they already do not reimburse ransom that is paid to terrorist organizations to free kidnapping victims and that a proposed U.K. law making it a criminal offense to do so is unnecessary.

The insurance industry was reacting late last month to British Home Secretary Theresa May’s proposed Counter-Terrorism and Security Bill that would amend the U.K. Terrorism Act 2000.

Ms. May said the legislation, which would require many organizations to take more active steps to thwart potential terrorism and provide information to the government, is needed “to tackle the increasing threat from international terrorism.”

Under the measure, on which British Parliament had taken no action late last week, insurers that pay insurance claims used to finance payments to terrorist groups would face criminal prosecution.

While details of kidnap and ransom insurance largely are kept secret since the coverage is invalidated if the buyer reveals that an individual is covered by K&R insurance, sources say about half of all the K&R insurance purchased globally is underwritten in the London market.

Before publication of the bill, brokers and underwriters expressed concern that any changes to existing practice may make it more difficult to underwrite K&R coverage. They also said existing United Nations and European Union sanctions rules, among other measures, already make it illegal to make payments to terrorist groups. “For some time, the U.N. has prohibited the reimbursement or payment of ransoms to proscribed terrorist organizations and Hiscox, like the rest of the London market, operates under these parameters,” Bronek Masojada, CEO of Hamilton, Bermuda-based Hiscox Ltd., a leading underwriter of K&R coverage in the London market, said in a statement.

Most K&R policies already exclude payments to terrorist organizations, said a source from another major K&R underwriter, who asked not to be named.

Despite the legislation, great changes in the way K&R insurance business is conducted in the United Kingdom are unlikely, said Marc Hewitt, vice president of special risks at Marsh Ltd.’s financial and professional practice in Norwich, England. “Also, the legislation would not affect the recoverability of the fees and expenses of a response consultant, who can assist a client with all aspects of an incident involving a terrorist organization,” he said. “Cover for such fees is included in all special risks policies, without any limit on the coverage provided, regardless of the time scale.”

Special risk policies also “cover reimbursement of various additional expenses, such as fees paid for psychiatric and/or medical care, legal advice and the salaries of the insureds,” he said.

“We will continue to work within the law to ensure our clients understand the environments in which they operate, are able to identify and reduce potential threats to their people, and have the capability to respond to incidents appropriately,” said Doug Milne, CEO of the special contingency risks division at Willis Group Holdings P.L.C. in London.

“It is worth noting, however, that the vast majority of kidnappings committed globally every year are not perpetrated by proscribed terrorist organizations,” Mr. Milne added.

According to one source, who asked not to be named, only about 2% of all kidnappings worldwide are committed by terrorist groups.

The home secretary estimated that the Islamic State group alone collected some £28 million ($43.8 million) last year in ransom payments.

Rating Agency A.M. Best Co. Inc. said it did not expect the proposal to drastically affect the insurance market if it becomes law.