Eligible Insurance Contracts
Are forklift trucks or other mobile equipment excluded from the Act?
Regulation 5 of the Terrorism Insurance Regulations 2003 refers to the types of contracts of insurance which are not eligible insurance contracts for the purposes of the Terrorism Insurance Act 2003.
Item 18 of Regulation 5 excludes a contract of insurance for a motor vehicle (other than moveable machinery or equipment, used in mining or construction activities, that would not ordinarily be registered to travel by road).
Consequently, the eligibility of contracts of insurance covering forklifts and other movable machinery or equipment will depend on whether or not the assets are ‘moveable machinery or equipment, used in the mining or construction activities, that would not ordinarily be requested to travel by road.’
Is an insurance policy covering viticulture trellis systems and the vines they support an eligible insurance contract for the purposes of the Terrorism Insurance Act 2003?
It is likely that a trellis system and the vines it supports would meet the description of eligible property contained in the Act. However, a contract of insurance which provides cover to farm business which does not include cover for business interruption is excluded by the Regulations. Consequently, whether such a policy is an eligible insurance contract will depend on the cover provided in the policy.
Does the scheme cover medical indemnity insurance?
The scheme covers only eligible insurance contracts. A contract of insurance is an eligible insurance contract to the extent that it provides insurance cover for losses that arise in relation to the ownership or occupation of eligible property. While insurers should seek their own advice about whether or not a particular insurance contract is eligible for the purposes of the Act, it would appear on the face of it that medical indemnity insurance does not provide cover for eligible property.
To what extent is an insurance contract which provides cover to parties in a “public / private partnership” consortium an eligible insurance contract for the purposes of the Terrorism Insurance Act 2003?
By reason of the Terrorism Insurance Act 2003 and the Regulations made under that Act a contract of insurance is not an eligible insurance contract to the extent it provides cover to the Crown in the right of a state or territory, or a minister or department of a government of a state or territory. Consequently, an insurance contract which provides cover to the Crown, a minister or a department and a private sector entity is not an eligible insurance contract to the extent that it provides cover to the Crown, a minister or a department, but may be an eligible insurance contract (if it otherwise meets the definition in section 7 of the Act) to the extent it provides cover to the private sector entity.
In an events cancellation policy does an insured have to actually occupy eligible property in order for the reinsurance offered by ARPC to respond to an incident?
For an events policy to be an eligible insurance contract for the purposes of s7(1)(b)(ii) the Act, the policy must cover business interruption and consequential loss arising from the inability to use eligible property that is occupied by the insured. The ordinary meaning conveyed by the phrase “eligible property … that is … occupied by the insured” clearly refers to an insured that is in actual possession of the eligible property. The phrase “is occupied” refers to the present tense (in actual possession) not future tense (will be occupied).
Is it compulsory for insurers to reinsure terrorism risk through ARPC?
It is not compulsory for insurers to reinsure the risk of eligible terrorism losses through ARPC. Local and foreign insurers have the option to:
- purchase terrorism reinsurance from ARPC;
- purchase terrorism reinsurance from a commercial reinsurer; or
- elect to hold the exposure themselves.
Of course, ARPC offers terrorism reinsurance for all eligible insurance contracts.
Do I have to declare all risk locations even if they are in the same post code?
Yes. This assists with aggregate reporting and, in the event of a Declared Terrorist Incident (DTI), will assist us in claims reporting and auditing.
Why do we have to report both eligible and ineligible Gross Written Premium (GWP) to ARPC once a year?
The ineligible component is required as the entire GWP of the cedant’s Fire and ISR portfolio is being determined and used as a measure of the cedant’s size. The purpose of the submission is to determine the retention. The retention is based proportionally on the size of the company. The reason we ask for the split, rather than just ask for a total figure, is so that the eligible component can be reconciled with that portion of the cedant’s quarterly submissions and (if required) the total can be reconciled with their APRA return (or equivalent).
What elements must be included in the Street Address Detail Aggregate Report, which is due by August 31 each year?
This report has slightly different requirements to the other two aggregate exposure reports. Building exposures are an obvious requirement if they are in an eligible policy but, importantly, a building does not have to be included at risk level. If the eligible policy is only issuing cover for ‘contents’ or ‘business interruption’ in the CBD postcode then these amounts should be submitted on their own.
Does the retention figure apply to each and every loss during a retention period or is it an aggregate deductible?
The retention figure noted in ARPC’s treaty agreement is an annual aggregate retention to be applied during the same retention period.
In cases where a parent insurance company has subsidiary insurance companies can ARPC set one retention for the group?
The Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction (Ministerial Direction) requires ARPC to apply a separate retention to each individual entity which reinsurers with ARPC. The Explanatory Memorandum to the Terrorism Insurance Bill 2003 reinforces the idea that it was the Government’s intention that a separate retention be applied to each individual entity which reinsures with ARPC. Item 1.1 of the Revised Explanatory Memorandum states that the retention will be set “per insurer” and item 3.38 describes the retention for “each insurer that reinsurers with the ARPC”.
Disclaimer: The Australian Reinsurance Pool Corporation (“ARPC”) is established by section 9 of The Terrorism Insurance Act 2003 (Cth) (“the Act”). The functions and powers of the ARPC are set out in sections 10 and 11 of the Act. The ARPC’s main function is to provide insurance cover for eligible terrorism losses and the ARPC has power to do all things necessary or convenient to be done for or in connection with the performance of that function. In the performance of that function, the ARPC will enter into discussions with insurers concerning the provision by the ARPC of reinsurance cover for eligible terrorism losses. The ARPC does not hold itself out as providing legal advice to insurers or the public in relation to the interpretation, construction or application of the Act and does not do so. The ARPC provides general information on its website, in its publications and in the course of its dealings with insurers about the Act, the regulations made pursuant to the Act and ARPC’s Reinsurance Agreement for Terrorism Risks. That information does not constitute legal advice. Insurers dealing with or proposing to deal with the ARPC should obtain their own legal advice, if that is considered necessary, for the purpose of making decisions.