Symon Ross looks at how the initial promise of insurance opportunities in post-war Iraq has faded into the desert dust

Insurers and brokers were rubbing their hands at the prospect of opportunities in post-war Iraq. Reconstruction promised a boom in demand for personal and commercial cover.

But the situation has deteriorated to such an extent that insurance companies view the immediate future with pessimism.

"For the moment, everything is very much on the back burner," says David Turner of broker Willis's construction practice. "We have not seen as much business as we were expecting in the time frame."

Turner says that because the billions of pounds of investment that was expected to go into Iraq's primary industries and infrastructure has not yet appeared, there has been limited opportunity for insurers.

Contractors are not putting large numbers of people in Iraq, but rather are flying them in from other countries to act in an advisory capacity to US army engineers, who have done most of the reconstruction work so far.

Although the anticipated boycott of recent elections did not materialise, resistance to coalition-enforced ideas of democracy has proved anything but isolated, with civil unrest and insurgent attacks taking place throughout Iraq.

Reconstruction has been near impossible and meant that the high levels of cover insurers' expected to sell have not happened.

The start of any of the mooted reconstruction projects is based on the political situation calming down and there is as yet no indication this will happen. But contractors and insurers are well aware of this situation, says Turner.

Few assets
"I don't see much sign of people thinking that it will be calming down any time soon," he notes. "They are not thinking it will all happen in 2005. We all thought the reconstruction would take place in 2004, but a year or 15 months on it is in some ways worse."

Personal accident, kidnap and ransom policies and other policies are being sold, but contractors are putting very few assets on the ground other than their people.

The insurance market is waiting to see what happens. A number of risks are being underwritten from London and elsewhere, such as political risk, personal accident, kidnap and ransom, flights in and out of Iraq, shipping of materials, and even assets in Iraq on a limited basis. Insurers have been prepared to cover these risks but have not seen the level of business they might have for larger risks.

Simon Sole, of Exclusive Analysis, explains that securing assets is still incredibly hard anywhere in the country.

Most of the main transport routes are unsafe, with high numbers of truck drivers being killed and kidnappings and looting still taking place, he says.

Transport key
"Many Iraqis and businessmen from other Arab countries, who thought there were opportunities in Iraq, have more or less given up and left to go to other countries," adds Sole.

"Transport is key to business in Iraq and businesses were seeing too many attacks on their truck drivers and cargo... Arab businesses have made huge losses and at the moment many see no point in being in the country because security is so bad."

But Turner says Western contractors are hanging in there. They are not committing huge funds or deploying vast numbers of people and resources but they are not pulling out completely. If the situation changes they will be ready for action.

Hiscox head of political risk Andrew Underwood agrees that demand has been lower than expected, but says the quality of the client, and the details of the risk, have played a big part in determining what risks have been accepted and at what price.

"All cases are looked at individually and in detail, and that is not just typical underwriter talk. The first three questions we ask are: who is the assured, who is the assured, and who is the assured? If we are insuring the right people, we can be comfortable that the company has taken precautions and looked into the risk in detail itself," he says.

Personal accident
Personal accident cover is one line that has consistently seen high traffic because no sensible company, individual contractor or journalist would go to Iraq without it.

David Bruce, also of Hiscox, says: "The ex-pats going out there desperately need the cover to make sure their loved ones will be looked after if anything happens to them. There is a lot of business coming in because there are a lot of people dying - you read about it in the paper almost every day."

He says despite the fact that more and more people are buying cover, rates for personal accident are similar to what they were at this time last year.

"You get to a level where you can't put them up any more," says Bruce. "At the moment it is mostly Iraqis being killed, but if there was an attack in the wrong part of the country or the same number of ex-pats were killed, then we would reconsider. If too many ex-pats were killed, the companies would pull out anyway. They are there to make money but they care about their employees. I can't see how they could stay."

Anne Williams, a director at Heath Lambert, agrees, saying: "The war may be over, but the 'unknown' factor means the risk is higher than ever.

"Insurers have paid out more in personal accident claims since the war than during it, with the risks being more volatile in nature.

"Overall, rates remain relatively stable, though this does depend heavily on the location, occupation and nationality of the person being insured, what their security measures are and whether or not any security personnel are armed," she says.

"It hasn't come to the point where we are putting rates up again or thinking about pulling out," adds Bruce.

"For now we are writing it with both hands because it has been good to us. But you could ask me in a month's time and it could be a different story."

Outside of the specialist lines, it appears that insurers will not see big contracts from Iraqi projects for some time. But there is no doubt that the industry will be keeping its eye on developments.

"Insurance is in a passive, somewhat reactive situation. A lot of things have to happen before we come into play," says David Turner.

"Until then we will sit in line and wait our turn."