The NHT is a reinsurer. As such, there is no direct relationship with the end customer, the policyholder who holds an insurance policy with an insurer that is a member of the NHT. However, the decisions made by the NHT can influence the compensation that is paid to policyholders. The Terrorism Coverage clauses sheet that is included in almost all policy conditions explains to the policyholder/insured that the amount that is paid for insurance claims will depend on the amount of the payment received by the insurer from the NHT.
Within 4 months after it becomes aware of an event, the NHT establishes whether the event qualifies as a terrorist act. In addition, it informs the insurers to which calendar year the event will be allocated. If the NHT is unable to do so within this period, it will announce as soon as possible how it will establish this at a later time.
After this announcement, the insurers have a period of 2 years to report all insurance claims relating to this terrorist event to the NHT. After these 2 years, the NHT will not owe any payment for any claims that are subsequently reported.
After the insurer has reported a concrete insurance claim, the NHT establishes whether there is a link between a terrorist act and the reported insurance claim. If the insurer who has reported the insurance claim does not agree with the decision of the NHT, the insurer can contest this decision in writing within 6 weeks by stating its reasons for objecting to it.
If insurance claims are handled by insurers before a connection with the risk of terrorism can be established, they can subsequently be reported to the NHT, after it has been established that there is indeed such a connection. If the claims handling insurer has already promised or made insurance payments, these claims will be treated by the NHT as if no payments or promises were made in this respect.
Allocation to a calendar year
As explained earlier, the maximum coverage provided through the NHT is EUR 1 billion per year. It is therefore important that the insurance claims caused by a terrorist attack are allocated to the correct year. Particularly if multiple incidents occur and the total amount could exceed the maximum coverage of EUR 1 billion. A number of guidelines have been developed for this purpose.
In case of a single incident, the time when the act (such as a terrorist attack) took place is taken into account. In case of the malicious spreading of pathogens and/or other harmful substances, the timing of the spreading is crucial. If this cannot be established, allocation takes place on the basis of the (first) moment when it is established that pathogens and/or harmful substances have been spread. This may be the moment when the presence of pathogens or harmful substances is first demonstrated or when the consequences become visible for the first time.
A series of incidents must involve attacks or contaminations that are related in time and purpose. In that case, all subsequent attacks and/or contaminations will be allocated to the year in which the first attack or contamination took place or was established. However, the scope of this allocation does not reach back further than the year immediately preceding the year in which the subsequent attacks or contaminations occurred. If an attack occurs in 2016 and the NHT is of the opinion that there is a connection with a series of previous attacks, the first of which occurred in 2014, there will nonetheless be no allocation to the year 2014. Instead, the actual date of the attack will be applied (2016). Likewise, no allocation will be made to the preceding year if the period between the initial attack and the subsequent attack is more than 6 months. In that case, too, the most recent attack is allocated to the year in which it actually occurred.
If the NHT has defined a particular event as terrorism, participating insurers can report to the NHT the insurance claims they have received for which they provide coverage under their insurance policies. Depending on the seriousness and magnitude of the terrorist event, a situation can arise where many large insurance claims are reported to the NHT. In addition, account must be taken of the possible threat of further (future) terrorist attacks.
Given that the total maximum coverage for insurance claims caused by terrorism is EUR 1 billion per year, it may be the case that the total amount of all claims still to be reported will potentially exceed the maximum of EUR 1 billion.
In addition to the decision to designate an event as a terrorist act, NHT is also responsible for determining a payment percentage. The purpose of determining a payment percentage is to compensate as many insured as possible equally for damage, losses, injuries and/or deaths covered by their insurance. To this end, the total amount represented by all reported claims in relation to the maximum of EUR 1 billion is calculated. If there is a risk that the maximum of EUR 1 billion will be exceeded, the NHT will determine a payment percentage lower than 100%. In concrete terms, this means that the cost of the insurance claims reported by the insurers will not be fully paid to them. The payment percentage is calculated by dividing the annual maximum by the total amount of all reported claims in that year or relating to that year. If, for example, the insurers reported EUR 2 billion in claims to the NHT, the payment percentage is 50% (EUR 1 billion: EUR 2 billion). In that case, 50% of the full claim amounts will be paid for all the reported claims.
Adjustments in payment percentage
When insurers report insurance claims to the NHT in a particular year and it subsequently emerges that the cost of these claims is higher or than was initially estimated, or when further terrorist attacks occur subsequently for which claims are also reported to the NHT, it may be necessary to adjust the previously determined payment percentage.
A number of scenarios are conceivable in this respect.
The cost of the claims reported to the NHT is lower than was initially estimated.
If an adjusted cost estimate leads to a higher payment percentage, this also applies to all claims already reported to the NHT at that time, and subsequent payments must be then made, if applicable
The cost of the claims reported to the NHT is higher than was initially estimated and/or another attack occurs.
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If a new cost estimate leads to a lower payment percentage, no amounts are claimed back for the previously reported claims for which a higher payment percentage had been determined. The lower payment percentage then applies to the claims that have not yet been reported to the NHT at that time.