By Mark E. Ruquet

As Londoners strive to find normalcy again in their daily livesafter the horror of four bombings in the city's transportationsystem, the insurance industry is beginning to come to terms withthe tragic day's fallout.

Officials with the Transport for London (TfL), which handles thecity's transportation system, have not released any damageestimates from the explosions that ripped through three subway carswithin minutes of one another and a bus almost an hour later.However, one insurance economist has put the figure at around $100million.

More than 50 are known dead, and the death toll will go higher,officials said. Recovery teams have been unable to retrieve victimsfrom a Piccadilly Line train deep inside one tunnel. Officials saythe walls need to be stabilized and forensic work completed beforethe bodies can be removed.

From an insurance standpoint, Richard Dodd, a spokesperson forTfL, said the system is insured through a captive program, LondonTransport Insurance (Guernsey).

Explained Peter Maclennan of TfL, under thePublic-Private-Partnership, London Underground operates the trainsand provides staffing. A private sector consortium named Metronetand Tube Lines maintains the lines infrastructure and tunnels.Claims are filed under the TfL's insurance, with the excessproperty damage policy indemnified by the London Underground.

Because this is an act of terrorism, explained Mr. Dodd, the actfalls into the Pool Re agreement where insurers who are part of thegroup will share in losses. However, he continued, Pool Re, theUnited Kingdom's public-private reinsurance arrangement, would notcover other TfL losses, such as business interruption. Such losseswill have to be absorbed by the TfL.

Generally, Pool Re does cover other risks, including businessinterruption, for participants depending on the terms andconditions they individually agree to, according to the Associationof British Insurers, a London-based trade organization.

Members of Pool Re share in losses up to ?75 million for oneevent ($132 million U.S.), or ?150 million ($265 million) per year,ABI said, noting that Pool Re's reserve does not come into playunless losses exceed those retentions. (The U.K. Treasury acts asthe insurers of last resort for Pool Re, protecting in the eventthat Pool Re exhausts its reserves.)

TfL said it is not yet ready to release estimates on the cost ofdamage from the bombings.

Robert Hartwig, vice president and chief economist with theInsurance Information Institute Inc. in New York, did venture anestimate. In a presentation at a conference in Hong Kong, Mr.Hartwig said that, after speaking with insurance insiders, heestimated the damage in the London bombing would be $100 million(?56.8 million).

Chris James, an associate director in process management for Aonin London, which deals with terrorism issues, said that despitereports that the four men who planted the bombs were suicidebombers, it has not changed the assessment of the risk amonginsurers. Rates have not changed, and overall, coverage remainsstatus quo, he said.

In comparison to what Britons have experienced in the past, thebombings were “quite small” in terms of property damage, noted Mr.James. He pointed out that the Irish Republican Army's bombingcampaigns a decade ago, when Pool Re was created, were aimed atcausing large property damage, ?100 million ($176 million) ormore.

One fallout, he said, may come from “contingent losses”–forexample, cancellation of concerts on the recommendation of thepolice. He said event interruption or cancellation insurance maycome into play under such circumstances.

Going forward, for the industry, as far as trying to assessterrorism risk, Andrew Coburn, director of terrorism research inLondon for Risk Management Solutions, noted that while the damageis light in terms of property damage, trying to produce a model toestimate the damage is very difficult. A lot of information neededto perform modeling estimates is not available currently, he noted.However, RMS will use this event to model future events, hesaid.

“What we are doing is keeping an eye on the type of injury andloss to calibrate losses where other events might take place,” hesaid.

The incident came as no surprise, he said. Ranking nations forincidents of terrorism, RMS placed Great Britain fourth on itslist. The United States is rated number one, followed by Iraq andAfghanistan.

If there is one positive note to come out of this, Mr. Coburnnoted, it is the size of the attack. It could indicate that inplaces like the United Kingdom and the United States,counterterrorism tactics are working.

“A strict counterterrorism environment does not prohibitterrorism from taking place, but it does deter the scale of theattack,” he said.

“If it is a larger attack, [the government] can detect chatter,but it's hard to detect chatter when it's on a smaller scale.”

He speculated that these attacks are aimed at changing foreignpolicy–recalling the bombing last year in Madrid, Spain–or to gainpolitical attention. The London bombing took place during the G-8Summit in Scotland.

“We may well see more small-scale operations like this, which ina way is good for insurers, because it limits potential loss,” Mr.Coburn said. “It's the much larger events that give us [theindustry] more concern.”

Four bombings throughout London's transportation system on July7, including one explosion that blew the top off a double deckerbus at Tavistock Square, left more than 50 people dead.

Infographic

Flag: Cost of Terror

According to the Insurance Information Institute, damage fromthe July 7 London bomb attacks, even at the latest guesstimate of$100 million in insured losses, will rank far below the top fivecostliest terror attacks.

Ranked by insured property losses (adjusted to 2004 costlevels), the largest events were:

o Sept. 11, 2001 World Trade Center/Pentagon attacks: $34.7billion/ 2,995 deaths.

o April 24, 1993 bomb near NatWest tower in London: $967million/ 1 death

o June 15, 1996 IRA car bomb near Manchester Mall: $794 million/no deaths.

o Feb. 26, 1994 bomb in World Trade Center garage: $773 million/6 deaths.

o April 10, 1992 bomb in London Financial District: $716million/ 3 deaths.

While the Oklahoma City bombing in 1995 and the Madrid bombingin 2004 each resulted in more than 150 deaths, insured losses werejust over $100 million for each.

Source: I.I.I. Web site based on information from Swiss Re andI.I.I.