Pool Re, the British insurance pool being studied by Australian legislators and the local insurance industry, is to be expanded. Set up in 1993 as a mutual reinsurer providing cover for property damage and business interruption caused by terrorist action, Pool re has been discussed as a good model for Australia as it grapples with the problem of terrorism risks.

From January 1 next year the scheme will be expanded to cover a wider range of risks. Most British insurers participate in the Pool Re scheme, and the UK Treasury stands behind it as an insurer of last resort.

Until now, that is. Under the changes announced last week by British Economic Secretary to the Treasury Ruth Kelly, Pool Re will become a treaty reinsurer instead of an insurer of last resort. It will also be altered to provide cover for more risks, extending from “fire and explosion”, to all-risks. That includes bio-terrorism, nuclear contamination, impact by aircraft and flood damage.

“These changes will provide more certainty for the insurance industry and its customers,” Ms Kelly said. “It will put Pool Re on a more modern footing. This is an excellent example of government and industry working in partnership.”

Under the new arrangements insurers’ liability will be capped so they know the maximum liability for any terrorist event. The maximum liability of individual insurers will be capped at $88 million per terrorist event and $175 million per year. These totals will rise annually to $292 million and $585 million in 2006.