Lack of terrorism cover is fast becoming an economic issue. Sarah Goddard says the government must act
More than seven months after the US terrorist attacks, the issue of who should provide insurance in these type of events still hangs unresolved. The 2001 figures being issued by property/casualty insurers around the world lend yet more credibility to their argument that these threats can no longer be part of conventional insurance policies. Instead, calls for a public/private approach to covering such exposures are continuing, most recently with a call from the US House financial services chairman Michael Oxley calling for a federal terrorism insurance backstop. The lack of terrorism coverage in the US is no longer just an insurance issue, he said, but an economic issue for a country trying to struggle out of recession.
Closer to home, the UK Treasury has yet again extended its emergency airline cover because of a lack of traditional insurance capacity for aviation terrorism risks. Although the mainland UK commercial property market has had recourse to Pool Re, a reinsurer ultimately guaranteed by the UK government, both the Association of Insurance and Risk Managers (Airmic) and the Association of British Insurers (ABI) have recently called for its terms to be extended from fire and explosion to lines such as employers' liability and business interruption.
Although the beginning of the month saw a new risk carrier, Special Risk Insurance and Reinsurance Luxembourg SA, set up by a group of insurers and reinsurers to provide property terrorism cover primarily to European insureds, the cover is limited to ¤275m (£168m) within 600 metres of an insured property. What's more, as with Pool Re, cover is limited to purely physical loss.
There is little doubt SRIR will help to plug gaps in the market, but if backers of the calibre of Zurich Financial Services, XL Capital, Swiss Re, Hannover Re, Allianz and SCOR feel unable to provide further lines of cover, the call for closer alliances with state-backed schemes must grow louder.
With Pool Re's success so far in the UK, and the terrorism risk still as high as ever - news reports last week were suggesting police forces had foiled an attack on London on the day of the Queen Mother's funeral - government and industry must unite to provide a financial backstop for the economy. n
Sarah Goddard is editor of Global Reinsurance