Within one minute on July 7, the first full day of the 31st G8summit in Scotland, a series of three bomb explosions struckLondon's public transportation system during the morning rush hour.An hour later, a fourth bomb exploded on a city bus.

The incidents, which killed at least 54 people and left 700injured, are the deadliest bombings in London since the Blitzduring World War II, and the deadliest terrorist attack since the1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland. Inaddition, the city's transport and telecommunication infrastructurewas severely disrupted for nearly a day.

Investigators have identified four men, three from WestYorkshire, who are thought to have carried out the attacks. Anotherman is reported to have been arrested in connection with at leastone of the suspects. The bombings are believed to have been plannedby Islamic terrorist organizations based in the United Kingdom. Theattacks occurred two days after the trial of radical cleric AbuHamza began in London.

Although officials with Transport for London did not initiallyrelease any damage estimates, Robert Hartwig, vice president andchief economist with the Insurance Information Institute, estimatedthe figure at $100 million. The transit system is insured through acaptive program, London Transport Insurance, and the LondonUnderground operates the trains and provides staffing. A privatesector consortium, Metronet and Tube Lines, maintains theinfrastructure and tunnels. Claims have been filed under thetransportation department's insurance, with the excess propertydamage policy indemnified by the London Underground.

Because the bombings are acts of terrorism, they fall under theUnited Kingdom's public-private reinsurance arrangement, Pool Re,established in 1993 in response to IRA attacks. Other losses, suchas business interruption, would not be covered by Pool Re, andwould have to be absorbed by Transport for London.

Contingent losses also may arise, said Chris James, an associatedirector in process management for Aon in London. These wouldinclude such things as cancellations of concerts on therecommendation of the police.

If the blasts were confirmed to be terrorist attacks, insurerswould be liable for $131 million per attack, capped at twice thatfigure if other attacks occur in the same year. Pool Re covers theremaining cost of the claim up to $3.5 billion pounds; the UKTreasury is expected to step in to pay the rest.

Although the losses are light in terms of property damage,trying to produce a model to estimate those damages is verydifficult, according to Andrew Coburn, director of terrorismresearch in London for Risk Management Solutions. A lot ofinformation needed to perform modeling estimates is not availablecurrently, he noted.

The incident came as no great surprise, however. On its rankingof nations for incidents of terrorism, RMS had placed Great Britainfourth. The United States is rated number one, followed by Iraq andAfghanistan. “The threat of an attack on London transport wasalways one of the more likely scenarios under consideration,”Coburn said. “It was designed to cause the maximum amount ofcasualties, fear, economic disruption, and media attention, whileusing comparatively small-scale attack devices.”

If there is one positive note, Coburn believes, it is the sizeof the attack. “We may well see more small-scale operations likethis, which, in a way, is good for insurers, because it limitspotential loss,” he said. “It's the much larger events that give usmore concern.”

The attacks have underscored the continued threat of terrorismglobally, according to Aaron Davis, vice president of propertysyndication at Aon Risk Services. “The terrorist bombings in Londondemonstrate that the risk of terrorism will exist, regardless ofwhether there is federal backstop or not,” he said. “The industrywill need to craft a solution regardless of TRIA.”

The insurance industry could do more to find a market solutionto terrorism risk. “In the absence of TRIA, we see a limited marketfor terrorism cover,” he said. “We would like to see some sort ofsolution. It is incumbent on the insurance industry to come up withthat solution.”