The September 11 attacks are likely to have longer-term implications for the insurance and defence industries, and possibly for international trade, according to a new study from the Organization for Economic Cooperation and Development.

One lasting impact is the rise in defence spending in several countries since the attacks, which has reversed part of the post Cold War period “peace dividend”. Although increased military and security spending can give a short-term boost to the economy, it creates a longer-term risk of crowding out activity in other sectors.

The study also examines the impact on the insurance industry where, despite losses estimated at between US$30 billion and US$58 billion as a result of the attacks, no major insurance firm bankruptcy has occurred. Nevertheless, the capital base of many firms has been hit, and it is likely that several businesses would not be able to withstand another, similar shock, according to the study.

Since September 11, the insurance industry has raised premiums and reduced its coverage of terrorism risk. Eventually, insurance coverage of terrorism risk may be restored. The study notes that government intervention to fill the gap in the meantime should be considered with caution and limited in time and scope.

Another possible medium-term impact relates to the costs and efficiency of international trade. Customs and port procedures have already become more time-consuming, while air-freight costs have also risen. Pressure is growing to tighten surveillance of goods, as well as migrants, at borders, the survey adds. Costs in other sectors may also rise as companies invest in increased security and to ensure back-up capacity of core functions.