Terror insurance

Rising fear of terror attacks in Germany is apparently spurring sales of insurance policies covering terror damages. Extremus, the country's only insurer offering such policies, says it is experiencing increased demand.

Based in Cologne, Extremus is a government-backed group of 16 insurers. It was founded after the Sept. 11, 2001, attacks in New York and Washington, covering losses above 25 million euros.

Extremus executive Dirk Harbrucker says the company is in its yearly cycle of renewing policies and hasn't had time to crunch the numbers yet. But there is "definite demand in a capacity, which we haven't experienced before," he told Deutsche Welle.

Although the company got off to a lagging start in 2002, it fills a market gap left open after other insurance companies backed out. A large portion of Extremus' policies apply to real estate, according to Harbrucker. Terror insurance, he explained, makes possible the financing of expensive properties and the establishment of real estate investment funds.

While terrorism damages up to 25 million euros are generally covered by conventional insurance policies, that's nowhere near enough to insure an airport, a skyscraper or an industrial facility, according to Harbrucker. All German airports are insured by Extremus.

"If the properties are financed, then there is often pressure from the banks that all risks be covered," he said. "It used to be that one could just say, 'Well, okay, terror is an abstract threat. It could happen, but thus far we haven't had it happen in Germany.'"

Slow growth

Operating in a niche market, Extremus has been slow to grow over the years, with 1,176 policies in 2004. Business today is slightly up, to 1,327 policies insuring 7,000 objects, some of which are bundles of multiple assets.

The company only insures assets in Germany, where its government guarantee is valid.

Pool Re, a British counterpart to Extremus, was founded in 1993 and has since incurred a total of 611 million pounds (724 million euros) in losses. In 2002, Pool Re removed exclusion clauses for chemical, biological, radiological and nuclear attacks.

The need for terrorism insurance has become more apparent since the Sept. 11 attacks, which also damaged beyond repair the Deutsche Bank building adjacent to the World Trade Center. Deutsche Bank later found itself in a legal dispute with the Allianz and Axa insurance companies, which disputed the status of the building as a total loss.

Some branches more exposed

Katrin Ruter de Escobar, of the German Insurance Association in Berlin, says Extremus fills a vital role in creating a degree of certainty and encouraging investment into large projects.

"Naturally, there are different risks associated with various (industry) branches and companies," she told Deutsche Welle. "Companies that could be perceived as a symbol of the social order here have a higher risk of terror attacks. So for certain branches, it certainly makes sense. There are more exposed branches and less exposed branches.

Recent warnings by the German government about a concrete terror plot against the country have spurred interest in the policies offered by Extremus. But given the conditions of the policies, the possibility for the company's market expansion remains limited.

Heike Trilovszky of Munich Re, one of the world's largest reinsurance companies, recently said that interest in terror insurance remains low.

"Apparently many are saying to themselves, 'I have more significant problems, and if something happens then someone will step up, possibly the government,'" he told the German newspaper Die Welt.

But Trilovszky warned against closing Extremus due to low demand. "The private insurance industry can't repeat the mistakes made before 2001 and cover damages from terrorism itself," he said.

Author: Gerhard Schneibel
Editor: John Blau