COMPANIES will almost certainly be forced to pay more for terrorism insurance after yesterday’s attacks, despite the fact that the Government is expected to bear most of the cost of the London bombings.

Insurance brokers said that the cost of terror cover was likely to rise within days, as underwriters factored-in the increased risk of another attack in the UK.

“The financial loss from today does not look like it will be massive,” Theo Butt, leader of the terrorism placement team at Marsh, the world’s largest insurance broker, said. “What may harden rates is the fact that an attack has actually occurred, that the risk is now higher.” Experts moved quickly to calm fears that the London attacks would trigger a meltdown in the insurance market, as happened after the September 11, 2001, terrorist attack on the World Trade Centre in New York, when insurers and reinsurers all but withdrew cover.

William Hawkins, a European insurance analyst at Keefe, Bruyette & Woods, the stockbroker, said: “This is unlikely to be an event that crystallises a systemic crisis in the UK or global insurance or reinsurance industries.”

Yesterday’s explosions on the London Underground and on a bus in the capital came just days after an Organisation for Economic Co-operation and Development (OECD) report gave warning that there were huge gaps in the terror cover bought by companies.

The lack of appropriate cover put countries at risk of greater economic damage than was caused by the September 11 attacks, according to the report. A single, huge attack could cost the world economy up to $250 billion, the OECD said.

London Underground is thought to be insured against terrorism by Pool Re, a mutual set up by the Government in the aftermath of the IRA bombing of London’s Baltic Exchange in 1992. A year later, the mutual paid out £262 million when the IRA bombed Bishopsgate in London.

Poole Re said that it was in talks with the Treasury about yesterday’s attacks, but would not confirm that it covered London Underground.

Pool Re acts as a reinsurer, covering commercial property and business interruption but not personal risks. Insurers pass their terrorism risks on to Pool Re at what the market considers to be a very reasonable cost, Mr Butt said. As a result, the UK does not have a substantial private terrorism reinsurance market, although some cover is sold by insurers and reinsurers in Lloyd’s of London. Pool Re has almost £2 billion set aside to pay claims and is backed by the Treasury.

Other European countries have similar government-backed terrorism insurance pools. The United States set up its own pool after September 11, when the private insurance and reinsurance market failed. But the OECD said that too few companies made full use of these schemes. In the US about half of all companies are insured against terrorism, while in Germany less than 3 per cent of firms used the government insurance scheme.

As a result, an attack would either ruin whole sectors of business or put a serious strain on the national budget as the Government would be forced to offer rescue funds, the report said.

The 9/11 attacks caused insured losses of about $31.7 billion.