Applications of exclusion zones in areas affected by a terrorism incident or other major disruptive event could result in up to 10 times the insured loss expected from physical damage due to business interruption, new research from the Australian Reinsurance Pool Corporation (ARPC) has found.

The research, prepared in conjunction with Finity Consulting and FPL Advisory, aims to quantify the financial cost of business interruption linked to exclusion zones. It draws on ARPC’s terrorism catastrophe models to analyse the economic impact of exclusion zones of various sizes set up after a major disruptive event.

ARPC says business interruption losses are highly sensitive to the size of an exclusion zone set up by emergency responders.

“Exclusion zones are a necessary tool to protect the public, stabilise property and assist the post-investigation process, but it’s important to understand that the size of, and duration of, an exclusion zone will impact businesses’ ability to operate,” CEO Christopher Wallace said.

“It is also worth noting that about 70% of small-to-medium enterprises are uninsured for interruption to their businesses from exclusion zones, so business owners could be left to bear these costs if a disruptive incident prevents access to their premises.”

The paper provides an estimate of physical damage areas for various bomb blasts or biological and chemical attack scenarios and estimates the financial costs of various exclusion zones in terms of their potential business interruption losses.

It also outlines several industry-accepted exclusion zone models and analyses these in conjunction with ARPC’s terrorism catastrophe models, to quantify the potential impact on financial losses in major Australian cities.

The paper does not make recommendations on appropriate sizes for exclusion zones.

Click here to apply for a copy of the Exclusion Zones and ARPC’s Interaction with First Responders paper.