The Federal Government says there’s still a need for a terrorism insurance scheme, but it has recommended several refinements.

The Government established the scheme in a bid to control the economic impact of a terror attack in Australia. The introduction three years ago was a result of the September 11 attacks in the US after which most insurers withdrew from the terrorism insurance market.

Releasing a review on the Terrorism Insurance Act (2003) last week, Treasurer Peter Costello (pictured) said terrorism cover would be expensive and in short supply without the scheme, risking reduced business investment and a weaker economy.

The report recommends the Australian Reinsurance Pool Corporation (ARPC) continues charging premiums for reinsurance at the current rates, and once the pool reaches $300 million it has discretion to use premiums to build the pool further or buy reinsurance.

It also recommends increasing insurer retentions under the scheme and requiring the ARPC to charge premiums only to sections of bundled policies that exclude terrorism cover.

It says the scheme should be modified to include all commercial cover for public authorities in a bid to ensure consistent treatment for government businesses.

The scheme – administered by the ARPC – covers commercial property and associated business interruption losses and public liability claims.

Cover is provided via several layers. The main layer is provided by a monetary pool funded by reinsurance premiums ($300 million). The pool is supplemented by a line of credit of $1 billion underwritten by the Government. It includes a $9 billion indemnity by the Government.

Mr Costello says the changes will encourage greater participation by the commercial market and make the scheme’s application to commercial property and infrastructure more consistent.

“Encouraging greater commercial market involvement is a key principle underpinning the scheme and is consistent with recent changes to terrorism insurance schemes in comparable countries.”

ARPC Client Services Manager Michael Pennell told Sunrise Exchange News the scheme hasn’t raised $300 million yet, but it expects to by the end of the year.

“As to how much more could be raised is really up to Treasury,” he said.