As the death toll rises in the aftermath of Thursday's terrorist bombing in London, an insurance industry executive said the real market disruption will not be from this act but from congressional failure to extend the Terrorism Risk Insurance Act.
Today, Police Commissioner Ian Blair said that at least 50 people died in the four explosions that rocked London's transportation system. He said there are still more bodies to be recovered, and the death toll will go higher as the investigation continues.
He also said there were 700 injured and that over 300 people with minor injuries were treated at the scenes and released.
When asked about responsibility, Mr. Blair said, "This has all the hallmarks of al-Qaida."
While authorities search for clues to the perpetrators, insurers are taking their own lessons from the act.
"The threat of an attack on London transport was always one of the more likely scenarios under consideration," said Dr. Andrew Coburn, director of terrorism research at Risk Management Solutions, a risk modeling firm in Newark, Calif. "It was designed to cause the maximum amount of casualties, fear, economic disruption and media attention while using comparatively small-scale attack devices."
Aaron Davis, a vice president with the Chicago-based insurance brokerage firm Aon, said it is still too soon after the event to know what the size of the loss will be, but it is assumed it will not cross the $130 million maximum insurer amount payable under the United Kingdom's Pool Re program. However, insurers who contribute to the program would probably be responsible for portions of the loss, part of the Pool Re program.
The program was created in 1993 to protect commercial property after reinsurers withdrew from the market in the face of terror activity.
Mr. Davis said while there may be some short-term shying away from transportation risks, overall, there should not be near-term disruption in the market.
In the United States, while the Department of Homeland Security has raised the terror risk watch to "high" for America's mass transit system, Mr. Davis said the attack has brought the question of terrorism back to the forefront of the nation's consciousness.
Of most immediate concern to the industry should be renewal of TRIA, he said. The recent report released by the Treasury Department "glosses" over how non-renewal of the backstop program would cause major disruptions in the marketplace, making it impossible for insureds to get coverage.
"We don't think the report is accurate on how severe the disruption will be or how high the price could be," said Mr. Davis.
He was critical of Treasury and Secretary John W. Snow for not staking out a position for compromise. Treasury is calling for substantial increases in industry retention and threshold for loss. The proposed threshold increase==from $5 million to $500 million==would mean insurers would have to suffer extraordinary losses before TRIA could come into play.
"We think that those recommendations and modifications will prove to be unworkable," said Mr. Davis, adding that "the report is overly optimistic about the private market if TRIA is not reauthorized."
Clients are already experiencing problems on renewals as some insurers are excluding terrorism coverage at the beginning of 2006, while others are reserving re-pricing at the beginning of the year or giving some indication of what the price might be if there is no backstop.
Some may be able to turn to the standalone market, said Mr. Davis, but capacity is limited there.
He noted that the attitude in the United States is very different from Europe, where Germany today extended its terrorism backstop program for two years.
"The fact is that many in [Europe] have realized that a private-public partnership on terrorism risk is necessary, and that it can't be borne by the private market in the short term," he observed.
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