The Evolving Threat of Terrorism to Australian Real Estate

Terrorism is Changing

Traditionally attacks have targeted buildings and infrastructure, but they have been replaced by lone-wolf, low-tech attacks on public spaces – incidents that are harder to police and more tricky for real estate companies to protect against. Those responsible for large, public spaces such as the London Bridge, Palace of Westminster or the Sydney Opera House and Melbourne’s Federation Square must recognise that there is a greater potential for attack in these areas. Ownership of these open spaces has increasingly fallen into private hands. Now in Australia, real estate companies face a heightened danger from terrorism and have a responsibility to ensure these new exposures are managed appropriately, and replace historic coverage models with ones that better reflect the new terrorism environment.

Growing and Changing Terrorism Landscape

Australia has enjoyed three years without significant terrorism threats. But now, the country faces new threats stemming from home-grown jihadists, who aim to carry out attacks on Australian soil.

Australia has already suffered four terrorist attacks and quelled 11 attack plots since 2014, and security intelligence indicates that further incidents are possible with the Australian Government’s National Terrorism Threat Advisory System stating that the chances for attacks are ‘probable’, urging the public to “exercise caution and report any suspicious incidents”.

Making matters worse is the fact that terrorist attacks are becoming more complex. Unlike traditional attacks which have targeted infrastructure, terrorism has shifted to targeting individuals instead. According to Aon’s latest Terrorism and Political Violence Risk Maps, there has been the increased usage of vehicles as improvised weapons, which became the most lethal form of attack in 2017 in Western countries for the first time ever (resulting in 52 per cent of all fatalities and 54 per cent of all casualties during the year). Vehicle attacks have been carried out to deadly effect in France, Germany, UK, Sweden, and most recently in London, with significant injury to individuals, but little to no impact on infrastructure.

Impact to Real Estate Insurance

As Scott Bolton, Director of Business Development and Network Relations, Aon Risk Solutions points out: “Traditional terrorism coverage is designed to respond to the mid-1990’s threat; big IRA bombs in the City of London that produced large losses from property damage and business interruption, but very little loss of life due to the coded warnings that preceded them.”

The impact of the changing terrorism landscape, in terms of business losses to the real estate sector, has shifted away from property damage to business interruption and loss of life. This has major repercussions for the sector in Australia, where the Australian Terrorism Pool provided by the Australian Reinsurance Pool Corporation (ARPC) only trigger when eligible property has been damaged. Given the shifting dynamics of terrorist strategies, these requirements may not be met.

Recent changes announced by the ARPC will provide some expanded level of cover to Australian real estate companies; however, the insurance industry must also work to produce solutions that can meet the evolving needs of the real estate sector in light of more complex exposures such as Cyber Terrorism.

Australian real estate companies will need to reassess their insurance programmes to ensure they keep up with these changing dynamics, and stay vigilant to terror threats in the region.