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Councils' insurance costs against terrorist attacks are likely to rise by more than£10 million in 1996 as a result...
Councils' insurance costs against terrorist attacks are likely to rise by more than £10 million in 1996 as a result of last Friday's IRA bomb in London Docklands.

Councils had been hoping to take advantage of discounts on premiums as a result of the IRA's ceasefire, but reductions were dependent on claims for 1996 not exceeding £75m.

Estimates from loss adjusters put the damage in Docklands at between £75m and £150m.

Specialist terrorist reinsurer Pool Re, which provides cover for councils, said it was too early to predict whether councils would lose their discounts.

'Until we have a claim exceeding £75m nothing will happen,' said Pool Re chief executive, Leslie Lucas.

He said the picture would be clearer by the beginning of next week. Some of the buildings damaged were not insured against terrorism, and others may have limited cover with Lloyds of London.

The prospect of increased insurance premiums for terrorism has injected yet another unknown into councils' current budgeting process.

The Corporation of London, which covers the City, is likely to be hit hardest by a loss of discounts. Its insurance bill would increase from £4.3m to £7.2m.

Insurance cover against terrorism has soared since 1993 in the wake of bombings in the City. Some councils' premiums quadrupled.

But the ceasefire saw insurance costs fall steadily. Councils received a 40% discount - an estimated £8m - on premiums because no claims were made in 1995.

Pool Re had cut premiums by 20% for 1996 and said councils would only have to pay 60% of the discounted premiums up front, with the rest payable only if claims exceeded £75m. This raised the possibility of more than £10m of savings on the estimated £20m a year councils spend on cover against terrorist attacks, but both these discounts could now be lost.

Pool Re is responsible for around 90% of all terrorist cover in the country. It was set up following the St Mary Axe bombing in London in April 1992, which cost £800m and led to insurance companies withdrawing from the market. It is backed by the government, which agreed to be insurer of last resort to prevent a crisis in the market.

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