OECD to examine terrorism reinsurance issue

The Organization for Economic Cooperation and Development (OECD)says it will look into the issue of terrorism reinsurance in light of the potential economic impacts worldwide. At its Ministerial Meeting in Paris this week, the OECD formally stated, “We recognize the adverse effects of the shrinkage of affordable insurance cover for terrorism risks. We would welcome OECD policy analysis and recommendations on how to define and cover terrorism risks and to assess the respective roles of the insurance industry, financial markets and governments, including for the coverage of “mega-terrorism” risks.”
In background reports to the meeting, the OECD notes that “insurance has a decisive impact on entrepreneurship and investment decisions”. It will look into “multi-pillar” solutions involving insurers, government and financial markets. It will also look at the potential impact of “mega-terrorism”, i.e. losses that cannot be covered by the private market and losses that could exceed a state’s capacity to cover.
“Since the attacks, the commercial insurance industry has raised its
premiums,” states a background report. “More worrying, insurance coverage has shrunk for a number of industries deemed too risky, such as aviation.” While acknowledging that insurers may at some point move back into the terrorism coverage market with specialized coverage, the report notes that this is not happening as yet. It proposes limited government assistance, both in scope and time, as a “last resort”.
The OECD also plans to look at other emerging risk areas, including natural disasters and technology, health and environmental risks. It will look into the issue of liability, alternative compensation mechanisms and the role of government in safety regulation, compensation funds and compulsory insurance, in order to address the insurability of emerging risks.
“To provide insurance coverage, time-bound solutions may have to be sought involving partnerships between governments and the private sector,” says the OECD.