By Mark E. Ruquet

As Londoners strive to find normalcy again in their daily lives after the horror of four bombings in the city's transportation system, the insurance industry is beginning to come to terms with the tragic day's fallout.

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

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

From an insurance standpoint, Richard Dodd, a spokesperson for TfL, said the system is insured through a captive program, London Transport Insurance (Guernsey).

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

Because this is an act of terrorism, explained Mr. Dodd, the act falls into the Pool Re agreement where insurers who are part of the group will share in losses. However, he continued, Pool Re, the United Kingdom's public-private reinsurance arrangement, would not cover other TfL losses, such as business interruption. Such losses will have to be absorbed by the TfL.

Generally, Pool Re does cover other risks, including business interruption, for participants depending on the terms and conditions they individually agree to, according to the Association of British Insurers, a London-based trade organization.

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

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

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

Chris James, an associate director in process management for Aon in London, which deals with terrorism issues, said that despite reports that the four men who planted the bombs were suicide bombers, it has not changed the assessment of the risk among insurers. Rates have not changed, and overall, coverage remains status quo, he said.

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

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

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

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

The incident came as no surprise, he said. Ranking nations for incidents of terrorism, RMS placed Great Britain fourth on its list. The United States is rated number one, followed by Iraq and Afghanistan.

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

“A strict counterterrorism environment does not prohibit terrorism from taking place, but it does deter the scale of the attack,” 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 foreign policy–recalling the bombing last year in Madrid, Spain–or to gain political attention. The London bombing took place during the G-8 Summit in Scotland.

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

Four bombings throughout London's transportation system on July 7, including one explosion that blew the top off a double decker bus at Tavistock Square, left more than 50 people dead.

Infographic

Flag: Cost of Terror

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

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

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

o April 24, 1993 bomb near NatWest tower in London: $967 million/ 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: $716 million/ 3 deaths.

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

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

Special Reports /

Damage From London Terror Bombings Could Reach $100M

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