While the direct impact of the Iraqi war on most European companies'insurance will be minimal, the real risk will come later when the likelihoodof terrorist attacks on businesses and employees increases, writesKieran McHugh.

For most mid-sized European companies, a conflict in Iraq will have no direct insurance implications. Of far more concern is the increased danger of terrorism that could follow.

While there is no foreign investment in Iraq, some European companies may have assets in the surrounding countries. However, it is unlikely that these would be damaged by a war centred on Iraq.

In any event, property cover generally excludes war risks, leaving it to governments to accept responsibility where they have declared war.

Marine insurance does cover war risks and some companies trading with partners in countries regarded as high risk by underwriters may have already experienced additional costs.

Another war-related issue is companies' responsibility for their employees' safety.

Clearly, companies should recall ex-patriate workers in high-risk areas such as Kuwait and Israel and postpone business trips to such countries until the political situation is resolved.

There is also an issue for those with multi-ethnic workforces who need to ensure that the strong emotions that could be generated by conflict do not result in bullying or worse in the workplace.

Undoubtedly, the biggest concern for European companies is the likelihood of an increase in terrorism.

While large multinational companies and those with high-visibility brands may have the most to fear, smaller companies cannot assume that they will not be affected.

Those with premises in city centres or in or near buildings that are "trophy targets" face the greatest risk.

Companies that share multi-tenanted buildings with higher-risk occupants could also be in danger.

A war in Iraq appears likely to prompt action from small militant groups rather than large- scale attacks by organisations such as al-Qaeda.

Therefore, companies can take some measures to protect themselves by enforcing good security. It is essential to screen visitors and safeguard premises against break-ins.

Unfortunately, for some types of companies, such as those in the hotel, retail, transport and leisure sectors, access for visitors is a key part of their operations and strict security measures are difficult to enforce.

Often too it is difficult for a company to monitor some areas such as underground car-parks.

Companies that believe terrorism could affect a key business unit should also ensure that they have alternative back-up facilities, sited far enough away so as not to be affected by the same incident.

This is an important part of contingency planning, not just in respect of terrorism but also other potentially serious occurrences such as a fire, and will help to minimise disruption and potential losses from lack of business continuity.

Similarly, companies that source key products or services from suppliers or sell to major customers in high-risk countries need to consider the potential impact on their business should those suppliers or customers be successfully targeted.

Some multinational companies are protecting themselves against terrorism globally through insurance.

This blanket approach may not be practical for smaller companies, but they too need to consider if and how terrorism could affect their business.

It is a question of balancing the risk against the cost, taking into account the likelihood of an attack at or near their premises and the territories in which they operate.

Individually, insurers exclude terrorism losses in their cover for buildings and other property. Although local schemes exist in some countries - for example, France, Germany and Spain - these may not completely fill the gap because of the difference in the way that standard property policies and schemes define terrorism.

For example, insurers generally exclude acts committed for ideological or religious purposes.

However, a national scheme may define the acts of terrorism that it covers as activities directed towards the overthrowing or influencing of any government.

This leaves the possibility that malicious damage by some types of activist may be uninsured.

Local schemes may also require a company to insure property at all of its locations in the country, which may be unattractive for a business that considers only its city-based head office to be at risk. Stand-alone terrorism cover may be a better option here.

Terrorism does not just represent a threat to property. In some parts of the world, terrorist and guerilla groups have targeted foreign workers so companies need to consider whether they should protect their expatriates and business travellers with kidnap and ransom insurance.

There are some specialist insurers that will provide this, along with risk assessment and advice for employees to minimise vulnerability.

Companies should also check their public liability insurance. Some insurers are now excluding terrorism cover where there is potential for a significant number of claims from third parties.

Perceived high-risk businesses include shopping centres and providers of transport.

Again, it may be possible to buy stand-alone insurance to cover this.

Key strategies for managing the risks associated with conflict in Iraq and a subsequent increase in terrorism are:

l removing personnel from high-risk areas;

l understanding and dealing with possible sensitivities in the workplace;

l assessing your target potential for terrorism;

l screening visitors;

l enforcing security for premises;

l protecting employees abroad;

l considering terrorism insurance for property;

l deciding whether a national scheme (where available) or stand-alone cover is most appropriate;

l contingency planning in respect of key business units, suppliers and customers;

l checking the adequacy of public liability cover.

On the positive side, the world economy has been adversely affected by the uncertainty surrounding the situation in Iraq. If and when that uncertainty ends, and with it the trade embargo on Iraq, there may be positive implications and new opportunities for European businesses.

Kieran McHugh is deputy chief executive of risk and insurance services company, Marsh Ireland.