Terror cover: India ahead of all

India has an edge over developed countries when it comes to terrorism insurance. The Indian general insurance industry had set up its own independent terrorism pool after the 9/11 attacks on the US.

In contrast, the developed world had to rely on individual governments to establish a separate terrorism pool to take care of probable contingencies.

The terrorism pool is essentially a corpus of funds collected from all insurers to offset possible future losses arising out of such violence.

This became imperative, when such risk cover was excluded globally by insurers. Today, the country's terrorism pool has increased the coverage from Rs 300 crore (Rs 3 billion) per risk in 2001 to Rs 500 crore (Rs 5 billion) as on February 2005.

Last Thursday's blasts in London have seen developed nations rushing to extend their terrorism insurance pools. On Friday, the German government announced its decision to extend the backing of the country's terrorism pool Extremus AG for another two years. The cover would have expired on December 31, 2005.

The US insurance industry too, has asked the US Congress to extend the government programme of guarantees to help cover losses from terrorism. US' Terrorism Risk Insurance Act expires at the end of the year.

With the growing occurrence of terrorist attacks globally, international insurance players feel the dire need for 'private and public partnership in financing risk'.

According to a report released by the British Insurance Brokers Association, there has been an increase of around 274 per cent in terrorist attacks worldwide.

In 2001, post the attacks on the US, terrorism cover was no longer available internationally. Each country set its wheels in motion to protect their assets.

India, decided to set up its own terrorism insurance pool, pricing the risk cover at 50 paise for every Rs 1,000 sum assured (that is value of the property), in the case of industrial risks and 30 paise for every Rs 1,000 sum assured in the case of non-industrial risks.

Since early this year, the cost of terrorism coverage fell to 30 paise and 12 paise respectively. This was a reflection of the 15 per cent fall in international terrorism prices.

"We are watching the global situation, as India follows the international market," said a senior insurance executive. He, however, added that the perception of terrorism differs in India as government property and religious places are not insured.

The German pool was formed in 2002, aimed at covering property and business interruption losses following any terrorist attack in Germany.

According to the conditions of the terrorist coverage, the government provides up to 10 billion euros ($12 billion) in backing above the 3 billion euros ($3.60 billion) coverage written by members of the pool, which includes international insurance and reinsurance companies.