The insurance industry argued that the potential cost of terrorism was too great a risk for it to bear alone. The Government eventually bowed to pressure by agreeing to act as 'reinsurer of last resort', essentially capping the claims that would have to be met by the insurers.
The eventual cost is now estimated at no more than pounds 350m, the ABI said yesterday. The bulk of the losses arise from last April's bomb in the City of London, which destroyed Commercial Union's head office and damaged the Baltic Exchange. The cost of the Staples Corner bomb looks to be only about pounds 15m.
Tony Baker, the ABI's spokesman, said the cost was lower than expected because large amounts of empty office space had enabled companies to relocate cheaply and easily. Rebuilding costs were low because of the recession. And some firms had to bear some of their costs themselves.
Mr Baker said the industry's determination that the Government should share the risk was based as much on the threat of future bombs as on last year's losses.
The news came as the Government announced an agreement that will allow blocks of flats to be covered against terrorism. These pose a problem because of the potential concentration of residential claims.
The insurers will cover blocks of flats for up to pounds 2.5m at no extra cost. Above this level, owners will have to buy back terrorist cover at one ninth of the premium charged on commercial property.Reuse content