The financial cost of Saturday's bomb was put at pounds 300m to pounds 400m yesterday by the Association of British Insurers, which dismissed an earlier estimate of pounds 1bn.
Nevertheless, claims on this scale will greatly exceed the pool of special terrorism premiums collected under a deal last December between the Government and insurance industry.
With many firms, particularly those outside London, choosing to do without terrorist cover, it seems likely that the total of terrorism premiums collected this year will be less than pounds 200m, compared to the expected pool of pounds 400m. Insurers have agreed to bear 10 per cent of the costs beyond the income from premiums, but this could still leave the Government having to pay pounds 200m or more towards the cost of a single bomb attack.
In addition, since the pool of premiums will have been used up, the cost of further IRA attacks this year on mainland Britain will fall almost entirely upon the Government.
The Government's share of costs will be significantly greater than envisaged in December, when businesses were to pay premiums to create a pool for terrorist cover of around pounds 400m. This would have meant the Government would only have to act as 'reinsurer of the last resort' above a threshold twice as high as the pounds 200m or so which now seems likely.
Commons business managers have yet to find the time to pass legislation to allow the formal creation of Pool Re, the mutual insurance company set up by the industry to collect premiums and provide cover for terrorism.
Tony Baker, an ABI spokesman, said the legislation had been held up by Maastricht and other Bills, and added: 'It's got to have priority now.'
The Department of Trade and Industry confirmed yesterday that it would meet all legitimate claims under the December deal and legislation will be backdated to cover all claims since the start of the year.
Mr Baker said: 'We are urging the Government to make sure the necessary legislation for Pool Re is introduced as a matter of extreme urgency to reassure the insurance industry and its customers and to allow the mechanics of Pool Re to be put into effect.
'We are relying on assurances from the Prime Minister and the Secretary of State for Trade and Industry. But the insurance industry will sleep much easier at night when that legislation has been passed.'
The ABI's estimate of the cost of Saturday's bomb was in line with that of last year's City of London bombing which destroyed the Baltic Exchange and the headquarters of Commercial Union. Mr Baker said companies would have learnt from last year and would have contingency plans to keep business interruption losses to a minimum. They will be helped by the surfeit of empty office space in London.
Initial estimates of the cost of last year's bomb put it at pounds 1.8bn. By the time the insurers were lobbying the Government for help at the end of last year it had fallen to around pounds 750m. The eventual cost has turned out to be just over pounds 300m. 'Loss adjusters are notoriously wrong,' Mr Baker said.
Nicholas Balcombe, a leading loss assessor, was sticking by his figure of pounds 1bn yesterday. He said three or four buildings might have to be pulled down, including the Hongkong and Shanghai Bank offices, which bore the brunt of the blast. Mr Balcombe said that if the Government had not committed itself to paying for the bomb damage 'it would have been a major victory for the IRA'.
One leading assurer said the take-up of cover against terrorism was about 25 per cent less than the insurers had expected. However, it is believed most of the businesses in the City hit by Saturday's bomb will have taken out the necessary protection.
Insurers suggested yesterday that the industry will lose no more than about pounds 20m on claims arising from the bomb, an insignificant amount in the context of their total income.
Insurers may have a greater exposure if they have customers whose policies have not come up for renewal this year and who, therefore, have not bought specialist terrorism cover.
However, some of the companies in this position, including Royal Insurance and Norwich Union, have purchased so-called run-off cover from Pool Re.
The ABI again urged companies to take out terrorist insurance. Bombings have now taken place in 20 counties. Premiums may have to rise, especially in London.