Insurers Assess Possible Government Role for War, Terror Cover

October 1, 2001

In the wake of the terrorist attacks on the U.S. the world’s insurers are reassessing government’s potential role as the reinsurer of last resort, and as an essential partner in handling war and terrorist risks.

National governments have already stepped in to make sure that the airline industry can continue flying by agreeing to loan guarantees and in some cases direct payment of insurance premiums, which have risen by ten times or more following the September 11 attacks.

That’s only part of an overall solution, however, as the new understanding of the risks the world has to face from war and terrorism begins to sink in. Industry leaders have indicated that the perils are simply too great for insurers to continue to face them alone.

A possible model, which combines both private and government coverage, is the the U.K.’s Pool Re. Set up following repeated attacks by the IRA on British buildings, especially in London, it insures losses to buildings from terrorism. Companies pay for reinsurance, which covers a certain part of the losses. If the claims exceed the amounts of Pool Re’s reserves, the government steps in to pay them.

In Israel, where the confrontation with the Palestinians makes terrorist attacks almost a certainty, the government directly compensates individuals for the property damages these acts cause.

Provisions under these schemes aren’t available, however, for business interruption coverage, but, as the costs tend to be reflected in lower premiums, because the insurers aren’t exposed to the entire risk, complementary policies covering ancillary damages can be acquired at a more reasonable cost.

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