The London Bombings: Terror Pool Will Help Cover Losses

September 11, March 11, July 7-dates on a calendar until 2001, 2004 and now 2005. Everyone living, and numbers yet unborn, will remember those dates. The latest terrorist attacks in London killed at least 49 people, sent more than 700 to the hospital, many with life threatening injuries, shut down the city’s transport system and temporarily staggered the world’s financial markets.

The three rush-hour blasts on the Underground, which now appear to have been almost simultaneous, and one an hour later on a London bus, brought Britain’s capital to a standstill. Authorities said it would take some time before an accurate count of the dead and injured could be made, but the toll is expected to rise. Three days after the attacks rescue workers were still trying to reach the site of an explosion on the Piccadilly line, 70 feet underground, where many of the 25 persons still reported missing are feared to have died.

No absolute confirmation of the source of the attacks has been made, but several experts in counter-terrorism interviewed by the BBC said they bore all the hallmarks of al-Qaida and were similar to the attacks in Madrid that killed 191 people and injured more than 1200. One group posted a statement on a militant Islamist website claiming it was indeed behind the attacks. Another group, linked to al-Qaida, has also claimed responsibility. Both claims are still being investigated. Knowing the perpetrators won’t bring back the dead, nor will it allay fears in the rest of Europe, especially in Italy, that more terror attacks are to come. It will heighten vigilance for a while, but most counter-terrorist experts agree that catching all the murderous fanatics is virtually impossible, unless airport-type security screeners are stationed at every subway station and bus stop. An ability to absorb blows and fight back is also deeply embedded in the UK’s long established insurance community. Shortly after the blasts occurred the Association of British Insurers issued a statement promising that “insurance companies will deal with any claims as quickly and sympathetically as possible.” Stephen Haddrill, its director general, stated: “The insurance industry will do the best possible job over the next few days and weeks following these shocking events. We are not yet in a position to estimate the scale of damage to property and the human loss. Many policies provide terrorism cover. Anyone affected should check their policy and contact their insurance company or broker.”

Sadly, Britain has been down this road before. The attacks were not unexpected. The UK government not only began a crackdown on Muslim extremists after Sept. 11, but has also been the most visible U.S. ally in the Iraq war. Years of attacks by the IRA have left British residents all too familiar with terrorism.

The burden on the country’s insurers is in fact lessened by those experiences. In 1993 the government established a reinsurer, Pool Re, to cover losses caused by terrorism. The UK’s Treasury Department describes its goal as to “ensure that terrorism insurance would continue to be available, following withdrawal of insurers from a provision of terrorism insurance for commercial property.”

Pool Re’s management is currently in discussions with the Treasury Department. Although no formal statement has been issued, press reports indicate that, as there have been no terrorist attacks in London for several years, it has plenty of money, up to 2 billion pounds ($3.5 billion) by some estimates. The majority of UK insurers have acquired terrorist reinsurance from Pool Re. They therefore have capped the maximum amount any one company may have to pay at 75 million pounds ($130 million)-150 million pounds ($261 million) if there is another terror attack in the same year.

However, as the claims payments are made in proportion to each individual company’s share of the UK’s commercial insurance market, the actual losses for any one company are reduced proportionately. Pool Re pays any losses above 75 million pounds, and should its funds, which are provided by a surcharge on premium payments, become exhausted, the Treasury would step in.

Individual companies also responded almost immediately. Three of the four biggest health and accident insurers, AXA UK, Standard Life and Norwich Union stated they would pay all claims-up to the policy limits-under their critical illness, income protection or accident, sickness and unemployment policies without any questions about terrorist exclusions. Lloyd’s said it faced minimal losses, mainly from business interruption and property damage claims.

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