The government-backed terrorism insurance scheme is “best placed” to provide property damage cover from cyber attacks launched by extremists, according to the National Insurance Brokers Association (NIBA).

NIBA says in a submission to Treasury that commercial insurers offer cyber attack protection in standard property and casualty policies but many of these products exclude acts of terrorism.

Treasury is carrying out a triennial review of the Terrorism Insurance Act 2003 to determine if the Australian Reinsurance Pool Corporation (ARPC) is still required.

ARPC administers the terrorism insurance scheme, which was set up as an interim measure to correct a market failure in commercial property insurance following the September 2001 attacks on the US.

In this latest review, Treasury asked for feedback on whether the scheme should be extended to include cyber terrorism causing physical property damage.

“Given the current low capacity within the commercial terrorism market, it is unlikely that cover for physical damage resulting from a cyber terrorist attack would be able to be sourced from the commercial market,” the NIBA submission says.

“It is NIBA’s opinion that the scheme is best placed to facilitate this cover.”

NIBA says since the establishment of the scheme, a number of insurers and reinsurers have re-entered the market but capacity for commercial terrorism cover remains limited.

“Based on the experiences of NIBA, it unlikely that the private market would be able to provide cover on the scale currently provided by the scheme,” NIBA said.

The NIBA submission also called on Treasury to consider looking into the relationship between the scheme and existing motor vehicle, personal injury and commercial terrorism cover.

It says findings of this work should be used to inform the 2024 triennial review and ensure the scheme remains fit for purpose in the absence of adequate commercial capacity.

According to NIBA, the current triennial review process provides little scope to focus on other issues that affect the operation of the scheme.

“A number of gaps were identified that would be worthy of further investigation as to whether the scheme needs to be modified to address these issues,” NIBA said.

“There are many areas where the operation of the scheme can be unpredictable.

“Given the serious nature of the risks covered by the scheme, more work should do be done to ensure the scheme responds as expected by policyholders.”