Terror Insurance Slow to Catch on in Germany

Making money off the potential that terrorism attacks like those in Madrid could happen in Germany as well is not a pleasant business.

But following the 2001 terrorist attacks in New York and Washington D.C., a group of German insurance companies swooped in on what had until then been an unclaimed domestic market for terrorism insurance. The attack on the World Trade Center had been unparalleled in the history of insurance and exposed the need for policies dealing specifically with damage related to terrorism attacks.

Enter Extremus AG, a group made up of big-name German insurers including Allianz AG, that officially opened up shop in November 2002. Since then, Extremus has extended 1,176 terrorism insurance policies, bringing in a total of €105 million in earnings.

Their clients tend to mostly be in the construction or airline industry, according to the company, though Extremus has also begung to find customers in the telecommunications, real estate and tourism sector.

Insurance need in an unpredictable realm

The unpredictable nature of terrorism and its ever-changing targets make signing a policy a must for most companies.

"The thought process of these groups is completely foreign to us," said Bruno Gas, CEO of the group at a press conference last week. "And because these groups are foreign to us, it's adventurous to predict target countries, target sites and target objects."

Rather, Gas advocates his customers to be ready for anything, especially after the March 11 commuter train attacks that killed more than 190. The group insures airplanes, airports, high-rises, factory plants and other massive objects that normal insurers or the company can't handle on their own.

The group will not insure against nuclear, chemical or biological weapons attacks. Policies start at €25 million, the limit at which normal fire insurance policies stop.

Demand far lower than anticipated

But not many have heeded Gas' warnings. At the press conference last week, Extremus revealed for the second year in a row that the demand for terror insurance was not as great as anticipated.

After initially predicting in 2002 earnings of €300 million that could increase to €500 million in the coming years, Gas has been forced to ratchet down expectations for Extremus. Income from the premiums will likely be 20 percent lower than 2003.

Observes say the overall malaise in the German economy is to blame as is Extremus' policy of only insuring companies within Germany. That means major multinationals like Bayer AG or DaimlerChrysler have to purchase additional policies for their buildings in foreign countries.