New Terrorism Compensation Scheme Introduced in Denmark

The Danish government has introduced new law creating a state-owned insurance scheme for compensation for losses arising from a terrorist attack using chemical, biological, nuclear and radioactive (CBNR) weapons. The scheme comes into effect on 1 July 2019. There had been concerns that CBNR terror coverage available in the market was limited and, as it is not a mandatory cover, many insurers were considering whether to continue to offer it at all.

In basic terms, under the new scheme, the financial risk of a CBNR attack in Denmark will initially be borne by the State, but those costs are subsequently recovered from policyholders. It is the way those amounts are recovered, however, which will be of interest to tax managers. Following a CBNR attack and the State paying claims, a 5% levy will be applied to policies covering fire risks in relation to buildings, land, moveable property, railway vehicles, motor vehicles and ships.

Insurers will be required to collect the additional amount from their policyholders along with the first premium of the next calendar year. This will then be remitted in to a fund on a quarterly basis until the cost of the claims are fully recovered by the State, at which point the contributions will cease and any excess amounts held by the fund will be refunded to policyholders proportionally.

This way of funding terrorism cover is a less common approach. Additional (re)insurance pools, such as Pool Re in the UK or ongoing charges including the Victim of Terrorism Contributions to the Fonds de Garantie in France, are more frequently used forms of funding.

This ‘after the event’ method of collection means that hopefully the levy will never need to be collected. However, insurers writing risks in Denmark should be aware of their potential obligations under the new law.