The Government wants to set up a HK$10 billion fund to cover insurance claims from workers in the wake of any terrorist attack in Hong Kong. Funds for the scheme would come from cash set aside in the Government's fiscal reserves. The Financial Services Bureau will seek legislators' approval early next year to make provision for the change. To help reimburse the reserves, the Government wants to impose a 3 per cent levy on employees' compensation policies issued by insurance companies. Businesses have to take out a policy for each staff member to compensate them in case of any injury sustained at work. Based on the premium this year, the levy would bring in HK$90 million for the Government each year. The proposed scheme follows the September terrorist attacks in the United States, which are estimated to have cost the insurance industry more than US$50 billion. In the wake of those attacks, individual reinsurance companies have said that, from January 1, they will no longer cover such huge terrorist related claims. That has persuaded all the SAR's direct insurance companies to declare they will stop selling employees' compensation policies from January, as they would be unable to pass on any of the risk to reinsurers. Deputy Secretary for Financial Services Susie Ho Shuk-yee said the Government had no choice but to step in to launch the HK$10 billion facility to ensure insurance companies continued to offer the policies. 'The present law requires all employers in Hong Kong to purchase the employees' compensation insurance for their workers,' she said. 'The lack of reinsurance coverage for terrorist activities would expose direct insurers to insolvency risks. Insurers would have no choice but to stop selling the employees' compensation policies. 'The situation is undesirable. The Government has to take the role to ensure the three million working population continues to get insurance cover for terrorist attacks.' Insurance Commissioner Benjamin Tang Kwok-bun said the HK$10 billion would be needed to cover the worst-case scenario, which assumed the destruction of a tall skyscraper in Hong Kong, similar to what happened to New York's World Trade Centre. He said governments in the US, Britain, France and South Africa had announced plans to support the insurance sector to continue to cover the risk of terrorist attack. A government spokesman said the HK$10 billion fund would not widen the budget deficit in normal times, as the Government would need to pay the money only if a claim arose due to a terrorist attack. Although Mr Tang said the 3 per cent levy would be a charge on insurers, he admitted the proposal might increase costs for Hong Kong's companies, as it was likely insurers would pass on the levy by lifting premiums. Bernard Charnwut Chan, legislator for the insurance sector, said: 'It is highly likely that the insurance companies would pass the cost to the employers as they have suffered millions of loss in employees' compensation in the past few years.' The employees' compensation scheme has been a loss-making business for many insurers, due to a price war and the high rate of compensation, in the companies' view, that the courts have granted to injured workers. In order to meet claims from an existing shortfall in the scheme, the Government last month suggested employers and insurance companies pay into two compensation funds to replace the insolvent back-up fund. The fund ran into trouble with the back-up Employees' Compensation Assistance Fund running out of money while facing HK$350 million in claims from clients of collapsed insurer HIH.