The insurance industry is "playing with fire" because it is routinely underwriting terrorism risks without having the necessary expertise to fully understand the exposure involved.

That is the view of John Charman, CEO of Bermuda-based Axis Capital Holdings, who was speaking at the World Insurance Forum (WIF) session entitled "Terrorism - Assessing the Magnitude of the Human Peril" in Dubai yesterday.

Mr. Charman said he was "underwhelmed" by the quality of terrorism insurance underwriting and added that it was unrealistic for the US Government to expect the insurance industry to bear the risk of a major attack on a major city.

Fellow panellist Henry (Hank) Crumpton, a former co-ordinator of counter terrorism at the US State Department, said according to some experts there was a "better than even" chance of some kind of nuclear attack on a US city by terrorists during the next 20 years.

Mr. Charman said: "If a dirty bomb exploded in Manhattan, perhaps no-one could even live there for another 20 to 25 years. Imagine the economic consequences.

"It beggars belief that the US Government should think that the private sector can bear that risk."

The US terrorism backstop TRIA (Terrorism Risk Insurance Act) was extended by the US Government in December last year. It allows for some shouldering of the cost of claims by the public sector in the event of a terrorist attack.

TRIA had lulled many in the industry into a false sense of security, Mr. Charman warned, and he called for the use of more terrorism expertise by underwriters to better understand the nature of the true risks.

"I am underwhelmed by the underwriting of terrorism business," Mr. Charman said. "There is an oversupply of capacity and an oversupply of business relating to the risks from war, terrorism and political violence. But there is a huge undersupply of intellectual capital and expertise in this area.

"We are playing with fire from a management standpoint. This business I regard as historically one of the most volatile areas of insurance, yet it is so important to the global economy, because it underpins asset values throughout the world.

"I fail to understand why companies that wish to involve themselves in this volatile area allow unmonitored and largely uncontrolled underwriting activity to take place."

Mr. Charman added there seemed to be little due diligence carried out by terrorism reinsurers and suggested more use of terrorism risk experts.

Mr. Crumpton, whose 24-year career with the CIA included many years in the foreign field, said Al-Qaeda was known to be seeking technology to increase the impact of its attacks. He added that he was particularly concerned about the use of biological weapons.