OECD Launches Platform to Coordinate International Terrorism Insurance

June 14, 2010

The heads of all the national terrorism insurance programs of the OECD (Organization for Economic Co-Operation and Development) member countries met earlier this month at the OECD headquarters in Paris in an attempt to assure that terrorism risks will continue to be adequately covered.

Essentially the OECD posed the rhetorical question: “Who should pay for the next major terrorist attack?” The answer has become more complicated due to the current economic crisis and the increased pressure on the budgets of member countries to reduce expenditures.

“Both private and public financial resources have been mobilized to cope with the economic crisis and a series of unprecedented natural disasters,”the OECD explained, making government and enterprises “reluctant to assume more risks. Yet, is the absence of government involvement in terrorism risk coverage in many countries the most sound option today?”

The Paris conference was “organized under the auspices of the OECD Secretary General’s High Level Advisory Board on Financial Management of Catastrophes, at the initiative of the Australian terrorism insurance program. Some hundred governmental experts, top decision makers from the (re)insurance market as well as representatives of leading research institutions also participated in what was the largest ever gathering of key players in terrorism insurance markets.”

They shared a common consensus that a “fast economic recovery in the event of a major terrorist attack is all the more critical in the current financial context, and insurance plays a central role in this respect.”

The problem has been an urgent one since the Sept. 11 attacks, as “recent attacks have confirmed that modern terrorism is a global risk.” The OECD also stated: “While not disclosed to the public, there have also been many terrorist attempts over the last few years that have been averted by intelligence and security services – as reminded by the leading anti-terrorism expert Jean-Louis Bruguière who participated in the conference. The threat of terrorism will clearly be with us for many years to come.”

The scope of the threat raises the question as to whether “current systems of financial coverage of the terrorism risk are adequate to protect our economies. OECD countries have adopted very different solutions to address the same problem (although terrorism risk exposure, and awareness, vary from country to country). Some countries have left it to individual market players to assume the risk, while some have established private insurance pools.

“Others – 9 out of the 31 OECD countries – have set up public-private partnerships, most often with a layered structure approach in which various stakeholders can intervene under pre-determined thresholds and where the government acts as the insurer of last resort.

“Belgium and Denmark have established such a public-private mechanism very recently, suggesting that the role of the government remains important, not only in trying to prevent future attacks, but also in providing a backstop to stabilize terrorism insurance markets. This solution was highlighted in a widely disseminated OECD report published in July 2005….the day before the London subway bombing.”

However, the OECD pointed out that “very little regulatory and market information is available on a comparable basis to monitor the evolution of those national schemes, assess market trends, and identify and share best practices to continuously improve current solutions.

“The time has come for those in charge of terrorism risk insurance to cooperate and manage the global terrorism threat on a global scale. At the Paris Conference the OECD took action to meet that challenge. “The heads of terrorism insurance programs decided to set up, under the aegis of the OECD High Level Advisory Board, a permanent international platform on the financial coverage of terrorism risk.” Its main focus will be to “monitor the evolution of national systems of terrorism insurance as well as market trends.”

“This new OECD platform will also foster the development of best practices on financial prevention, mitigation and compensation of terrorism risk. While it will serve the countries where a national terrorism insurance system has been established, it will also benefit those countries that currently have no national scheme (2/3 of OECD countries and nearly all non-member countries) but are considering some form of national response to the terrorism insurance challenge.

For more information go to the OECD web site at: www.oecd.org .

Source: Organization for Economic Co-Operation and Development

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