In an effort to clarify what has become one of the most difficult areas of insurance risk underwriting in the wake of the September 11 attacks, governments of OECD nations and insurance industry representatives agreed this week on a definition of what constitutes a terrorist attack.

The Organization for Economic Co-operation and Development’s “Checklist for a Definition of Terrorism for the Purpose of Compensation” is designed to clarify the concept of terrorism for the purpose of compensation, not to give a general definition of terrorism.

The checklist identifies elements on which a definition can be based, including the intention, means and effects of an attack, and outlines the criteria required for the risk to be insurable or eligible for other types of compensation.

The OECD checklist is non-binding, and companies and governments involved in the compensation of terrorism are free to take other criteria into consideration when defining terrorism. However, the OECD says, its publication marks an important step in efforts by governments and business to address the major challenge of modern terrorism insurance.

Until September 11, terrorism risk was usually not explicitly mentioned in insurance contracts and covered at no extra cost as part of the protection against fire. In the wake of the World Trade Center attack, however, many insurers made clear that they were no longer willing to accept liability for losses caused by terrorism on existing terms. At the same time, they also became aware of the need to carefully define terrorism risk, be it for coverage or exclusion purposes.

http://www.oecd.org/dataoecd/55/2/34065606.pdf