Companies may find it hard to secure insurance as insurers cut coverage for losses caused by acts of terror, Standard & Poor’s said today.

S&P says that insurers will not only withdraw from the market in property and aviation insurance, but that they may step back from other risks such as employees’ workers’ compensation coverage rather than assume terror risks implicitly.

Don Watson, a managing director with S&P’s Insurance Ratings group, says “Many insurers will not want to provide significant coverage for terror losses regardless of government action. By their nature, terror losses are difficult to price, and the potential concentration within an insurer’s portfolio are such that it would be imprudent for insurers to write coverage without effective reinsurance. And right now, most reinsurers are not willing to provide large policy limits, much less uncapped coverage for terror risk. So some are thinking it’s better just to opt out of terrorism coverage altogether.”

S&P says that one of the lessons learned from September 11 is that many insurers have concentrations of risk that they had not previously factored into their underwriting decisions. Employee groups of 1,000 or more lives are common across the globe. Terror attacks on large corporate sites could easily bankrupt insurers with workers’ compensation claims averaging $1 million or more.

With many insurers opting not to renew policies that would cover acts of terror to buildings and properties, the businesses previously holding those policies would now have to cover any costs incurred from acts of terror. “The ratings implications for corporates are likely to be very limited and selective,” said Sol Samson, a managing director with S&P’s Corporate Ratings group.

“The additional risk may emanate from lack of coverage or much greater expense to obtain coverage. But the impact would be material only in situations where the perceived specific risk of a terrorist incident was high; just as lack of earthquake insurance isn’t a problem in regions that don’t face much risk of such natural events.”