Germany’s GDV insurance industry federation announced that a deal has been struck on setting up an insurance pool to provide cover for terrorism-related risks. It said the new pool will go into operation in September.
Creating a terror-risk insurance pool became necessary after the September 11 terrorist attacks in the U.S.
"We have have the necessary cover and the circle of shareholders has been decided," said Bruno Gas, head of the GDV’s damage-insurance unit. Gas did not reveal the names of the shareholders. They are believed to include mostly industry heavyweights such as Axa and Allianz but also public-sector insurance institutions such as Provinzial and Versicherungskammer Bayern.
The creation of the terror-risk insurance pool, to trade under the name Extremus AG, has become necessary since insurance companies worldwide refused to provide cover above the level of 25 million euro for terrorism-related risks following last year’s September 11 terrorist attacks in the United States.
In future, these risks, especially for industrial clients, will be covered jointly by the government and by the insurance industry via the new Extremus, which is to be headquartered in Cologne and will go into operation in September.
Terror damage claims of up to 1.5 billion euro will be covered by the German insurance industry, while an additional 1.5 billion euro in cover will be provided by international re-insurers. The government will be liable to cover any damage over and above 3 billion euro. Its maximum liability will be 10 billion euro. In other words, cover against terrorism-related risks in Germany will in future be provided up to a maximum 13 billion euro.
The government has yet to decide whether insurers are to be allowed to make tax-free provisions for underwriting terror risks, as they are already able to do when covering aviation or nuclear risks. "Without this, Extremus cannot be launched," Gas stressed. But he said he was confident that an agreement with the government on this point could be reached.
German industry will have to pay around 500 million euro in premiums to obtain cover for terror risks, Gas estimated, saying he expected demand to be strong. For example, banks would insist in future that property used as collateral against loans be insured against terrorist attacks.