Commercial pressure makes insurer alter wording, but keeps reinsurers

Royal & SunAlliance has narrowed its definition of terrorism "to reduce uncertainty for commercial customers".

The company excludes terrorism from its standard policies, but allows customers to buy extra protection.

It had used one definition of terrorism for the exclusion and another in its terrorism policies, creating a "grey area" of uncertainty, said technical underwriting director Colin Short.

Both definitions became the same on 1 January.

Short said: "We will only exclude terrorism on the same definition as we buy it back."

The wording now defines terrorism as: "An act of any person acting on behalf of, or in connection with, any organisation with activities directed towards the overthrowing or influencing of any government."

Short accepted that attacks such as damage to property by May Day protestors, or the 1999 nail bombing in Brixton, could potentially fall outside the definition.

Short said: "We are trying to remove a grey area that we were leaving for our customers to define. We can't put our finger on what might happen and what it might cost ,but we are trying to remove the uncertainty for our customers."

R&SA did not have to change its reinsurers as a result of the decision, which Short said was taken after customers' requests.

The change was likely to affect clients with large commercial property portfolios, particularly those needing cover in major city centres.

Short was a member of the Treasury-led working party that widened the scope of Pool Re's remit from protecting against fire and explosions to all terrorism risks.

Meanwhile, R&SA is set to warn private policyholders that it will not cover them for terrorist attacks.

Its rival Norwich Union (NU) recently "clarified" that policyholders were not covered for chemical, biological and nuclear attacks.

NU claimed last week that it began writing to policyholders six months ago to warn that only "traditional" terrorist attacks would be covered.

A spokesman said: "If someone parks a car bomb outside your house then you are covered, but if it contains biological spores then you are not."

But the companies have made it clear that the situation is different for commercial customers.

An NU spokesman said: "Since 1 January we have offered businesses the chance to buy all-risks cover that will protect them against all forms of terrorist attack."