Parisian businesses struggling after the Nov. 13 attacks are likely to be able to make successful insurance claims, helped by a state-backed fund set up in the wake of the Sept. 11 2001 attacks in New York.
The carnage in Paris could spur demand for insurance against terrorism, as French hotels, department stores, and sports and concert venues face cancellations and fewer customers.
Those shops and restaurants in the areas cordoned off by police for investigations are expected to be affected the most.
However, the Gareat co-reinsurance pool, set up in 2002, which is provided with unlimited state-guaranteed cover through the CCR (Caisse Centrale de Reassurance) fund, will help insurers pay claims from businesses.
This pool structure, pioneered by Britain’s Pool Re in 1993 and common in developed markets, acts as a reinsurer, sharing the insurers’ burden in protecting business against terrorism. This makes terrorism insurance more affordable for businesses.
Insurers will be liable for the first 400 million euros of all claims combined, Gareat will pay out on claims between 400 million and 2.4 billion, with the French government taking up the rest via the CCR fund, according to 2015 data. Gareat and CCR were not available for comment.
The cost of damages will not fall to the state in the case of these attacks, however, industry sources said, as the costs will not reach anywhere near 2.4 billion euros, particularly as there is little property damage.
One expert predicted claims were not likely to top one billion euros.
The Gareat members are French or foreign insurance companies which issue property damage policies covering risks in France, including terrorism.
Although businesses do not have to buy business interruption insurance, which covers against operating losses, most small and medium-sized companies buy property damage and business interruption as a package, an industry source said.
In addition, about 15 shops and small businesses directly affected by the Paris attacks may together receive 600,000 euros of aid, under a proposal from the mayor of Paris.
The payouts are separate from those to be made to individuals linked to the victims of the attacks from France’s compensation fund.
Julian Enoizi, chief executive of Pool Re, said small businesses can be hit hardest, as in the case of the Irish Republican Army bombing of the northwestern English city of Manchester in 1996.
“Often it is small business which suffers most post a terrorism event as the reliance on access of customers to their business places them under huge pressure.”
Large venues such as concert halls and stadiums which canceled events – such as the U2 concert at the Bercy arena scheduled for Nov 14 – as a result of the attacks will be able to claim on cancellation insurance, provided their policies contain a terrorism clause, which industry specialists said was likely.
Large hotel groups will likely also have taken out cancellation insurance, which usually kicks in if hotel rooms are standing empty several weeks after the event triggering the claim, said Tarique Nageer, terrorism insurance specialist at broker Marsh in New York.
Europe’s largest hotel group, Accor, declined to comment on its insurancepolicies, but said it was giving customers the option of postponing rather than canceling bookings in the Paris area.
But the situation will be worse for smaller hotels which are less likely to have relevant insurance, or for tourists reluctant to travel to areas hit by recent attacks.
“You can cancel a hotel room up to 24 hours beforehand – they are going to be empty,” said Rob Montgomery, senior underwriter for contingency at insurance firm Ark.
Travel insurance would only apply if there is official advice to cancel trips.
Nageer at Marsh said businesses were showing more interest in protecting themselves following the French attacks.
“People are asking for more terrorism insurance and wanting to learn more about what policies cover, in Europe and the U.S.”
Prices were also likely to rise, at least in the short term, insurance specialists said, for both terrorism and cancellation insurance.
But they expected the impact to be limited, with insurers generally already pricing in such attacks.
“I don’t think it will have a long-term effect on how our market views these risks,” said Edel Ryan, head of media and entertainment at insurance broker JLT Specialty. (Additional reporting by Noor Zainab Hussain.)