July 15th, 2009

Global Terror Update: Spain

Posted at 1:00 AM ET

global_cover141x141In 1941, Spain created the Consorcio de Compensacion de Seguros (CCS) as an institution to provide compensation for civil commotion losses arising from the Spanish Civil War. Following a series of major catastrophes in the 1940s, the CCS gained permanent legal status as a government-controlled company in 1954. Although CCS is a government-owned entity, it is managed as a private company with a board drawn from both the insurance and government sectors.

Since 1954, coverage for “extraordinary risks” including natural catastrophes and political risks (including terrorism) has been compulsory. CCS functions as a state insurance facility guaranteeing such cover for these risks. After deregulation in 1990, it became possible to insure the risks privately. Since then CCS provides cover for those risks that are not covered in the private insurance market, subject to a continuing requirement for all policyholders to pay a CCS premium to maintain a full mutualization of all terrorism risks.

Following the events of September 11, 2001, reinsurance capacity became scarce for industrial and commercial risks. CCS broadened its operations to include business interruption due to terrorism, offering reinsurance for terrorist-related business interruption risks, provided the direct insurers were signatories to the agreement. In 2004, business interruption was added to the “extraordinary risk” cover, and the reinsurance agreement with CCS came to an end. With sufficient reserves at its disposal, CCS has the ability to protect and provide economic compensation for extraordinary perils on behalf of the Spanish government on a direct basis or through reinsurance. If claims exceed CCS’s resources, it offers an unlimited state guarantee, which has never gone into effect.

The CCS covers personal lines, including life, personal accident, commercial, and industrial lines for properties located in Spain and, in the case of personal accident, terrorist acts that occur in Spanish territory. Also included under commercial and industrial lines are theft, plate glass, machinery breakdown, electronic equipment, civil works, motor vehicles, and railtrack vehicles. Casualty lines covered by CCS do not include terrorism, but this cover is available in the private market. 

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