NO.101

Government Response To The Withdrawal Of Terrorism Insurance

The Treasurer today announced that the Treasury will be undertaking a process

of consultation to determine a response to the withdrawal of insurance cover

for terrorist risk in non-statutory classes of insurance and what form those

arrangements might take.

Action may be required as a result of advice from international reinsurers

that cover for terrorism will be removed on all new treaty reinsurance from

1 January 2002 and that terrorist cover on facultative reinsurance

has been withdrawn for new risks and is being withdrawn as existing policies

come up for renewal.

After consulting with the insurance industry and other key stakeholders, Treasury

will provide advice to the Government in early 2002. The Commonwealth will also

consider bringing indemnities currently being provided to the aviation sector

into the broader solution.

In considering potential options, the Government will have regard to arrangements

that have been implemented or are in the process of being implemented in other

countries.

It cannot be assumed that the outcome of the consultation process will involve

the Commonwealth Government providing indemnities or financial assurances to

the insurance industry, or particular sectors of the economy. Since insurance

is a commercial matter, obviously it will be necessary to engage the private

sector in risk allocation and pricing indemnities.

The Government has consulted with State and Territory Governments regarding

their statutory insurance schemes, particularly workers’ compensation and compulsory

third party insurance arrangements, and understands that the States and Territories

are considering the implications of the withdrawal of insurance cover in those

classes and are taking steps to deal with the problem.

MELBOURNE

20 December 2001

Contact: David Alexander

02 6277 7340