Yesterday’s devastating bomb blasts in London, which killed at least 37 people and injured over 700, also caused substantial damage to London’s transport system as well as related property damage.
Questions arose shortly after the attacks concerning the P/C insurance industry’s potential claims. The Association of British Insurers (ABI) issued a bulletin stating: ‘”that insurance companies will deal with any claims as quickly and sympathetically as possible (See previous article).
The U.K. has unfortunately had a lot of experience dealing with terrorist attacks, having weathered almost 20 years of them at the hands of the I.R.A. To assure continued indurance coverage, the government established a reinsurer, Pool Re, in 1993 to cover losses caused by terrorist attacks.
According to an announcement from the U.K.’s Treasury Department, “Pool Re was set up in 1993 to ensure that terrorism insurance would continue to be available, following withdrawal of insurers from a provision of terrorism insurance for commercial property. HM Treasury is the ‘reinsurer of last resort’ for Pool Re, protecting it in the event that it exhausts all its financial resources following claim payments.”
Under the scheme, the British government collects a surcharge on premiums, which are then “pooled” to pay for losses covered by the fund. While it was originally intended to cover losses primarily caused by I.R.A. bombings, after Sept.11, the government expanded Pool Re’s coverage from “fire and explosion” only, to an “all risks basis.” For example, it can now cover “contamination, impact by aircraft, or flood damage.”
Pool Re’s management is currently in discussions with the Treasury Department, and has issued no formal statement concerning the attacks. However, press reports indicate that, as there have been no terrorist attacks in London for several years, it has plenty of money, up to 2 billion pounds ($3.5 billion) by some estimates.
The majority of U.K. insurers have acquired terrorist reinsurance from Pool Re. They have therefore capped the maximum amount any one company may have to pay at 75 million pounds ($130 million) – 150 million pounds ($261 million) if there is another terror attack in the same year. However, as the claims payments are made in proportion to each individual company’s share of the U.K.’s commercial insurance market, the actual losses for any one company are reduced proportionately.
Pool Re pays any losses above 75 million pounds, and should its funds become exhausted the Treasury would pay the rest.
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