Terror insurance still lacking

PARIS (AP) — Some of the world’s most advanced economies remain ill-equipped to survive the fallout from a major terrorist atrocity, the OECD is warning, despite widespread efforts since the September 11, 2001, attacks to spread insurance risk between public and private sectors.

“There are still significant gaps in coverage, which could be revealed by another large-scale attack,” said the Organization for Economic Cooperation and Development (OECD), a Paris-based club of 30 industrialized countries, in a statement prepared to accompany publication today of a report on terrorism risk insurance.

Almost four years after hijacked passenger jets slammed into the World Trade Center, the Pentagon and a Pennsylvania field — killing nearly 3,000 people and running up the biggest insurance bill in history — the calculation of such risks remains difficult and the worst attacks uninsurable, according to the 289-page study.

Although governments are rightly devoting attention to preventing attacks, the report adds, “Ensuring financial coverage of the terrorism risk, if prevention were to fail, is a no less important policy issue to mitigate the potentially devastating impacts of future attacks.”

Faced with a shortfall of reasonably priced insurance, the United States, Australia, France, Germany and the Netherlands stepped in after the September 11 attacks to offer companies last-resort government guarantees. Two other OECD countries, Britain and Spain, had similar schemes in place before 2001.

But coverage remains patchy even in some of the countries where it is most readily available, said Cecile Vignial-Denain of the OECD’s financial markets division, which directed the study.

Only half of U.S. corporations had taken out terror insurance by the end of last year, while in Germany the figure stands at less than 3 percent of eligible companies, Miss Vignial-Denain said.

“Germany has a very large exposure. A whole swath of the economy is uninsured,” she said.

The report also cautions that insurance policies generally exclude the worst kind of scenario — in which a chemical or nerve agent, nuclear device or radiation-spewing “dirty bomb” is used to attack a major city — and government guarantees often do not provide adequate cover.

Smaller states could be bankrupted by such a “mega-terrorist attack” — which the OECD said could cause losses of up to $250 billion, compared with the $32 billion insurers paid for September 11.

“In some smaller countries, or countries with smaller insurance markets, even if the state came to the rescue, it would find it difficult to cover those risks without endangering the stability of its entire economy,” Miss Vignial-Denain said.

Post-September 11 predictions that financial markets would meet the insurance shortfall with new “terrorism bonds” and other risk-spreading products have proven overly optimistic, according to the OECD report.

The report suggests that international risk-sharing agreements may be needed along the lines of conventions on nuclear disasters, but concludes that there is not enough political will for a far-reaching deal on terror risk.