Mirroring the U.S. markets, Sept. 11 has led to increased scrutiny of European terrorism insurance coverage. Previously, terrorism coverage was commonly implied in the wording of property and liability insurance contracts for nominal premiums. Now reinsurers are carefully assessing the severity and frequency of terrorism risk and have introduced specific exclusions as a result, reported Fitch Ratings. This will make it more difficult for primary insurance companies to pass terrorism-induced losses to the reinsurance industry.

According to Fitch analysts, this lack of terrorism insurance could result in the partial collapse of a well functioning insurance system, undermining economic stability. Fitch said that it favored government-sponsored structures and limited insurance market participation as the most efficient mechanism for providing long-term terrorism insurance capacity.

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