Under cover: the 2012 Olympic Games offer large demand for terrorism insurance.

After a hard-fought selection process, London was chosen as the site of the 2012 Olympics, as organizers announced July 6 that the British capital had beaten Paris, New York, Moscow and Madrid.

But with the events of July 7--when London's mass transit system was hit by four terrorist bombs that killed more than 50 people and injured hundreds more--suddenly, some of the risks that London would assume in staging the Olympics came into very sharp focus. Insurers and brokers took particular notice. "One of the biggest issues [of the Olympics] will be the provision of terrorism cover," said Bob Donovan, liability and construction underwriting manager at Norwich Union Insurance Ltd.

David Bruce, divisional head of specialty for Hiscox's Syndicate 33 at Lloyd's, expects total insurance coverage of the London Games to be between $2 billion and $2.5 billion, based on his calculation that the 2004 Athens Games had about $1 billion in cover. Bruce said the Games will create an infrastructure that will make it easier for London to win more international sporting events.

The Olympic Games have drawn the attention of terrorists in the past. In 1972, 11 Israeli athletes were murdered by Palestinian terrorists at the Munich Games. In 1996, one person was killed and hundreds were injured during a bombing near the site of the Atlanta Olympics. That attack was carried out by Eric Rudolph, a white supremacist who received two life sentences for killing a police officer and seriously wounding a nurse in the 1998 bombing of an abortion clinic in Birmingham, Ala. The 2004 Olympic Games in Athens were the subject of intensive security and a great deal of anxiety. In the end, the Games went off peacefully.

Despite earlier Olympic experiences, Mike Sibthorpe, London market underwriting director for Brit Insurance Holdings plc, said, "Everything is looked at on its own merits. After 9/11, everyone's view of terrorism has changed and security has stepped up."

Terrorism, with its inherent liability constraints, is one line that is already attracting interest from potential clients. Such cover will be written on a "first-come, first-served basis," said Duncan Fraser, London-based senior vice president of the global events practice of brokers Marsh Ltd.

There is some feeling within the insurance industry that London's antiterrorism experience will work to its advantage as the Olympics approach.

"We have some of the best security and some of the best experience in counterterrorism," Fraser added. "So London, I think, is a good risk."

The recent bombings in London "highlighted the potential" for something to happen, Fraser said. But he pointed out that, of the five finalist cities, all but Paris have now suffered serious terrorist events. Fraser also cited the United Kingdom's experience at putting on major sporting events. He noted that there has never been an incident at the annual tennis championship at Wimbledon. Bruce is confident about London's ability to handle the terrorism risk. He noted the long history that the British capital has had in dealing with terrorism from the Provisional Irish Republican Army.

Marsh's Fraser said that the Olympic coverage will involve a range of potential risks. "You've got liabilities," he said. "You've got cancellations. You've got property risk. You've got financial lines."

The Olympic coverage will be written globally, Fraser said, with at least 50% of the capacity likely to come from the United Kingdom. "London will be a major player," he said.