The widening impact of insurers’ new attitudes towards risk – partially fuelled by September 11 – is slowly becoming more apparent. Insurance is causing problems for all sorts of businesses and individuals. First it was airlines, then community events, then professional groups, and now it’s the turn of the vast Australian property sector. The Government has been dragging its feet on the issue of providing cover for terrorism, following the withdrawal of the global insurance industry. Perhaps it’s waiting to see what Europe and the US will do. The US, like Australia and other western countries, is still thinking it over.

The lack of terrorism cover is now worrying ratings agency Standard & Poor’s, which fears the knock-on effects it may spark in the property industry.

The Property Council of Australia has already raised deep concerns about the issue, saying 65% of institutionally held property will not have terrorism insurance by June 30, leaving $66 billion in property inadequately covered.

S&P’s said the problem could damage the credit ratings of listed property trusts as well as the troubled commercial mortgage backed (CMB) securities market if it is left hanging. CMBs in the US are already being downgraded by Moody’s in light of their increased risk profile.

Andrew Lally, S&P’s corporate infrastructure group associate, told the Australian Financial Review that there are definite credit issues and the Australian property industry “is in a real state of flux”.

“If the issue of terrorism insurance were to go unresolved for some time, it’s a credit factor that we would have to incorporate into our ratings,” he said. “[S&P’s] is looking at seeing this matter resolved as soon as possible,” he said.

In an open letter to Prime Minister John Howard last week, the Property Council called on the Federal Government to endorse a pooling scheme made up of the combined premiums of domestic policyholders.