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Terrorism: Is Your Cover Affected?


The world witnessed in 2014 a significant surge in terrorism attacks, with total fatalities from terrorism events increasing by almost 25% globally^. The issue became prevalent closer to home last month, as the Lindt Café siege unfolded in Martin Place, Sydney. On 15 January 2015, the Federal Treasurer officially declared the Lindt Café siege as a “declared terrorist incident” for the purpose of the Terrorism Insurance Act (“the Act”). Any such announcement may also specify a reduction percentage for the purposes of sub-section 6(6) of the Act. The Treasurer’s declaration stated that no reduction percentage applied.

So what does this actually mean for insurance?


After the September 11, 2001 terrorist attacks in the United States, many insurers imposed terrorism exclusions within their insurance policies in response to the withdrawal of terrorism cover from the global reinsurance market. The Act was enacted by the Commonwealth Government to address this gap in cover, and the Australian Reinsurance Pool Corporation (“ARPC”) was established under the Act to develop and administer a reinsurance scheme to provide support for insurers. The total value of the scheme is currently $13.4b.

The ARPC commenced operation on 1 July 2003, and insurers who reinsure with the ARPC can access the pool to recover their eligible terrorism losses from a declared terrorist incident, subject to various thresholds. According to data from the ARPC, the current estimate for the total insured loss in relation to the Martin Place siege is just over $600,000, which is well below the threshold before ARPC becomes liable to pay out funds to insurers.

The Treasurer’s declaration last week meant that any exclusions relating to terrorism under an eligible insurance contract are overridden and the insurers must pay their claims in accordance with the other terms and conditions of the eligible insurance contract subject to any applicable reduction percentage.

While the Act does not apply to other insurance lines such as Travel, Motor, Marine, Cargo, those policies may still contain policy exclusions for terrorism. Therefore we recommend you to review all policies to ensure you understand how these policies may respond in similar scenarios.

Can I get additional cover?

Stand-alone terrorism insurance products are available in the global insurance market. However these are not commonly purchased in Australia, especially since the ARPC came into effect. Those most likely to consider purchasing stand-alone property terrorism insurance cover are generally large companies and entities including real estate business and financial services institutions.

Does this affect residential properties?

It is important to understand that provisions of the Act do not include residential properties or the contents of residential properties. For “mixed use” properties (i.e. partially residential and partially commercial), availability of property terrorism cover varies depending on the ratio of a property’s residential use vs. commercial use. For predominantly residential properties, the Act’s provisions also do not apply.

Residential insurance (including homeowners and household contents) is part of the personal lines insurance market and falls outside the scope of the Act. Personal lines insurers usually apply terrorism exclusions to their insurance products eliminating any insurance coverage for acts of terrorism. For residential property managers, owners or strata managers, separate terrorism property insurance cover may be available from a stand-alone insurance market.


The Act is reviewed every three years to determine the need for the Act to continue to address a perceived market failure in the reinsurance industry for the provision of cost effective terrorism insurance cover. It is positive to see the Commonwealth Government working closely with the Insurance Council of Australia and other stakeholders to bring a responsible resolution in dealing with the aftermath of such an unfortunate event. As the police investigation of the Martin Place siege continues, the Act and the ARPC are in place to function as a scheme that ultimately seeks to protect businesses who suffered eligible terrorism losses from terrorism events. 

^Verisk Maplecroft Political Risk Atlas 2015.

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.