The impact of the terrorist attacks will have an effect on leisure activities such as travelling and sport. John Jackson explains.
As the world reels from the attack on the World Trade Centre, underwriters are cautiously assessing what the future may hold in this new global scenario where insurance takes a front seat.
Air travel was hit hard by the attacks and many people will be making claims on their insurance. So it would seem travel insurance is set for rate increases. But travel insurance usually contains a war clause that excludes terrorism. A spoksman for the Association of British Travel Agents (ABTA) says he doesn't believe premiums will go up, as claims will not arise because of the exclusions.
However, tour operators are advising travellers to take out insurance for medical costs in case they are injured following terrorist action, especially as private medical care costs can be substantial in countries such as the US.
One of the bigger impacts on tourism is on the transatlantic route. A spokesman for ABTA says: "Americans who fly to the UK represent a high proportion of travellers using that route. However, they get very skittish when there is any form of terrorism.
"When the IRA was active, Americans cancelled on masse and it took them a long time to travel again to Europe. They are very easily put off.
"When we had the Gulf War, bookings went down, but when it finished, it turned out people had postponed travelling, rather than not taking foreign holidays at all."
Even before the tragic events in the US, there were calls for travel insurers and holiday companies to include terrorism cover in terrorist-plagued areas such as Spain.
There is nothing like a crisis to galvanise Whitehall and the government stepped in smartly when insurers threatened to withdraw cover for airlines. Under a new agreement that is being challenged in parliament by the Liberal Democrats, airlines will pay the first £35m on any loss and the taxpayer will pick up the rest. For wide-bodied aircraft such as a Boeing 747 or an Airbus A340, the difference could be around £1.4bn.
The London War Risks Committee has also taken action in the marine insurance market, where premiums have rocketed. More countries in the troubled Middle East have been added to the list where insurance premium surcharges will apply.
The effect on events
Events have also taken a severe knock, say insurers. Sporting events suffered (see box) and, even though the UK's most important fashion event, London Fashion Week, went ahead, it was in a much more subdued way. With 250,000 jobs involved in the fashion business, many smaller designers could have gone to the wall had the event been cancelled. As it was, 61 of the 67 designers turned up, although the big US buyers did not make it to London.
Companies are also looking at insurance for entertainment programmes for the first time. Penny Ellis, managing director of corporate hospitality firm EventWise, says: "We don't usually find many people take up the offer of insurance, although you can be exposing yourself to a high loss.
"But now people who haven't already booked their Christmas parties are being reticent about holding them this year. Others are toning their plans down and reviewing what they are doing.
"The cost of an insurance policy is a minute proportion of overall expenditure - in the region of 5%."
Insurex Expo-Insure is a major events insurer. Claims director Paul James says Lloyd's underwriters have told the company not to accept terrorism cover for new business.
Insurex currently includes terrorism cover in its policies and many events were immediately cancelled after September 11 because speakers were unable to fly to their venues.
James says: "In some instances, our policy will give limited cover for disinclination to travel for a period of 30 days following a terrorist incident.
"But after the 30 days, underwriters deem that people who say they are afraid to travel are showing a lack of support for the event, which is a policy exclusion."
Underwriters are concerned that the current crisis is an ongoing situation, particularly after President Bush declared the US to be at war with the terrorists and the countries that harbour them.
James adds: "That could constitute a war situation. Lloyd's has not yet given us a firm ruling, but I think a future terrorist incident might be deemed by Lloyd's to be war."
Providing war cover
While some underwriters have been excluding terrorist cover from existing policies, broker Willis has developed products to help organisations secure war and malicious risks cover. This can be provided on a country or worldwide basis, including persons working in, or travelling to, high-risk areas.
Executive director of Willis' international accident and health unit, Nicola Fraccalvieri, says: "We estimate less than a third of all organisations that have some exposure to war, terrorism and malicious acts have the appropriate coverage in place."
Another broker, Miller Insurance Group, is offering stand-alone terrorism coverage for companies affected directly or indirectly by recent events.
Mark Good, a director at Stonehouse Conseillers, niche brokers specialising in the advertising film industry, also confirms that terrorism cover has been withdrawn for new business.
"There is very little reinsurance from which to purchase cover and the price for it is untenable for clients. Work not yet contractually committed will exclude terrorism," he says.
"There aren't that many insurers around at a time of diminishing capacity and with adverse results, looking to write this class of business.
"Eight or nine underwriters have closed down this year at Lloyd's and other markets that write this business. AIG Europe, for example, closed
its film and contingency department in February. The market had been too soft for too many years," Good says.
Chubb Insurance worldwide entertainments manager Gene Williams says: "In the days following September 11, for events cancellation we instituted a brief moratorium on terrorism cover for new events, including withdrawing some outstanding quotes, until we can make an intelligent decision on how to move forward."
Chubb has now launched into its second phase, he says, "which is going back into the market carefully with a very broad terrorism exclusion. Rates will definitely increase, because the world is more uncertain.
"When you are trying to price how much an event cancellation risk is worth, it is not just the event itself, but all the circumstances surrounding that event - and uncertainty about those circumstances is driving the rate up."
Williams says in the past five years or more, the general soft market has caused worldwide
rates on cancellation covers to fall. He adds: "Underwriters will try to get their premium adequacy up to a more realistic level. Our clients are going to suffer a significant decrease in coverage and, at the same time, a significant increase in premium.
"One of the difficulties in underwriting event cancellation business up to now has been the relatively few losses and so one did not know what premium was needed.
"We could imagine nightmare scenarios and, now we've had a nightmare scenario, our instincts tell us that the premiums we have been getting are not enough."
Underwriters are clearly digging in for a long haul. The tragic events in the US have speeded up decisions by insurers on premium rises and exclusions in what is now a much tougher marketplace.