03 November 2026
Terrorism Insurance in Construction: Pool Re vs Open Market Where Are We Now?
Why terrorism insurance still matters
Terrorism insurance remains an important consideration for the construction industry. Major building projects, infrastructure schemes and city centre developments can carry significant exposure to disruption, delay and financial loss if affected by a terrorist incident. Whilst such events are rare, the consequences could be severe, and terrorism cover is often required under building contracts and/or funder requirements.
For many years, the discussion was relatively straightforward: Pool Re was the established solution and, in many cases, the only realistic option. That position has changed. The open market is now capable of providing meaningful terrorism capacity through Lloyd’s syndicates and specialist insurers, while Pool Re has also evolved to reflect modern risks and changing market conditions. The result is a more nuanced decision for developers, contractors and their advisers.
The Pool Re position
Pool Re was established in 1993 following a series of terrorist attacks that caused insurers to withdraw terrorism cover from standard Construction All Risks (CAR) policies. Backed by HM Treasury, its purpose was to restore confidence and ensure that UK businesses could continue to buy terrorism protection. In the construction context, Pool Re has therefore been a familiar and contractually recognised route for insuring terrorism damage and associated business interruption.
In broad terms, Pool Re covers property damage and business interruption arising from acts of terrorism in Great Britain, excluding Northern Ireland. Its protection can extend to explosions, arson and other physical attacks, Chemical, Biological, Radiological and Nuclear (CBRN) events, and certain cyber-triggered terrorism where physical damage results from remote digital interference. A limited form of non-damage business interruption may also apply, for example where access is denied or attraction is lost following a certified act of terrorism, but this remains dependent on the underlying policy wording.
A key feature of Pool Re is that it operates on a “follow form” basis. In practice, the terrorism cover follows the underlying CAR or property policy. If the underlying policy excludes or limits a particular item, the Pool Re protection will usually reflect that position. This makes the quality of the underlying CAR wording critical. It is not enough to assume that buying Pool Re automatically solves every terrorism exposure.
Pool Re also operates on a non-selection basis. Once a policyholder elects to use Pool Re terrorism reinsurance, it is generally required to do so consistently for eligible risks rather than selecting the cover only where the perceived risk is higher. This supports the integrity of the wider pool and avoids adverse selection.
Recent Pool Re developments
Pool Re has also continued to modernise. In April 2025 it completed a significant transformation of its reinsurance scheme, giving member insurers greater freedom over underwriting and pricing. This was designed to return more risk to the private market and encourage wider take-up, while maintaining the government guarantee and the core policyholder protection.
A further construction-specific development took effect from 1 April 2026: terrorism cover on new project placements can be arranged for the full project duration, subject to a maximum of 48 months, rather than needing annual renewal every 365 days. For most projects, this should reduce the risk of administrative gaps or missed renewal dates.
The open market alternative
The open market offers a different approach. Standalone terrorism policies underwritten by Lloyd’s syndicates and other specialist insurers are not government-backed, but they can be highly flexible. They may provide broader territorial coverage, including Northern Ireland or overseas projects, and can sometimes include wider definitions of terrorism, sabotage or political violence. They can also be structured around the specific features of complex developments, joint ventures, phased works or high-value assets.
This flexibility can be attractive, but it must be reviewed carefully. Open market policies may include inner limits for certain extensions, such as CBRN, cyber-triggered damage, denial of access or non-damage business interruption. Those limits may be materially lower than the full project value and may sit within, rather than in addition to, the overall policy limit. If the contract requires automatic reinstatement of the sum insured, day-one uplift or cover for specific extensions, the wording needs to be checked against those obligations.
Key coverage differences
One of the most important distinctions is CBRN cover. Pool Re will typically provide CBRN protection up to the full sum insured, whereas open market placements often provide a much lower sub-limit. For some projects, particularly those in sensitive or high-profile locations, this may be a decisive factor. Similarly, Pool Re now provides automatic protection for certain cyber-triggered physical damage, while open market cyber-terrorism limits may be more restricted.
There is, however, a definitional point in favour of many open market policies. Pool Re depends on an event being certified as terrorism and its definition can be narrower than the wider terrorism exclusions found in standard market CAR wordings. If HM Treasury does not certify an event, there can be debate as to whether the loss falls back into malicious damage, riot or civil commotion, or remains excluded by the fronting insurer’s wider terrorism exclusion. A well-drafted standalone Terrorism policy may reduce that uncertainty by using its own broader operative definition, although the insured will still need to satisfy the terms of that policy.
Contractual Considerations
Contract wording is central. JCT and NEC forms have continued to recognise terrorism as an insurance issue that needs to be addressed. Under JCT Design and Build, for example, terrorism cover may be required in joint names and can be placed via Pool Re or another provider if specified in the contract. NEC contracts are generally less prescriptive as to the source of insurance, but the required cover still needs to be in place. The key point is that modern contracts usually expect terrorism to be dealt with, but they do not always mandate one single route.
Developers and main contractors should also be aware that terrorism obligations are not always passed down the supply chain under standard sub-contract drafting. If the works are to be insured as a whole, the party arranging the project insurance must ensure the terrorism solution responds across the contract, not merely to the interests of one contracting party.
Choosing the right route
The practical answer is not that Pool Re is always better, or that the open market is always more sophisticated. Pool Re offers certainty, familiarity, government backing and strong protection for areas such as CBRN. The open market offers flexibility, wider territorial options and potentially broader definitions. The right solution depends on the contract, location, project value, required extensions, payment mechanism and appetite for claims certainty.
For availability-based projects, certain non-damage extensions may be less material if revenue is not lost where the asset remains available. For usage-based schemes, such as transport infrastructure dependent on traffic volumes, denial of access or loss of attraction may be more important. These commercial features should be considered alongside policy limits and contractual wording.
In 2026, the construction sector has more choice than ever, but also more responsibility to make an informed decision. Terrorism insurance should not be treated as a box-ticking exercise or selected on price alone. The policy should be reviewed against the contract, the underlying CAR wording and the risk profile of the project. With the right analysis, contractors and developers can use either Pool Re, the open market, or a carefully structured combination of arrangements to achieve compliant and resilient protection.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher (UK) Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
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