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16/12/2004 - OECD governments and insurance industry representatives have acted to clarify what has become one of the most difficult areas of insurance risk underwriting in the wake of the 11 September 2001 attacks by agreeing on a framework definition for compensation purposes of what constitutes a terrorist attack.
The OECD’s “Checklist for a Definition of Terrorism for the Purpose of Compensation” is designed to clarify the concept of terrorism for the purpose of compensation, not to give a general definition of terrorism. It identifies elements on which a definition can be based, including the intention, means and effects of an attack, and outlines the criteria required for the risk to be insurable or eligible for other types of compensation.
The OECD checklist is non-binding, and companies and governments involved in the compensation of terrorism are free to take other criteria into consideration when defining terrorism. But its publication marks an important step in efforts by governments and business to address the major challenge of modern terrorism insurance.
Until 11 September 2001, terrorism risk was usually not explicitly mentioned in insurance contracts and covered at no extra cost as part of the protection against fire. In the wake of the World Trade Center attack, however, many insurers made clear that they were no longer willing to accept liability for losses caused by terrorism on existing terms. At the same time, they also became aware of the need to carefully define terrorism risk, be it for coverage or exclusion purposes.
Further policy analysis and recommendations will be released in early 2005 by the Terrorism Risk Insurance Taskforce set up by the OECD in 2002. For further information, journalists are invited to contact Cécile Vignial-Denain in the OECD’s Directorate for Financial and Enterprise Affairs on (33) 1 4524 7848.
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