Federal Treasurer Joe Hockey is set to decide whether to classify the Sydney siege as an "act of terror" under the Terrorism Insurance Act, which overrides terrorism exclusion clauses set out in insurance policies.
If triggered, the scheme also provides protection for insurance companies in the event of huge payouts.
Under the scheme, insurers must pay a portion of the loss but if claims exceed what they can pay, that insurer can claim the excess from the Australian Reinsurance Pool Corporation (ARPC).
A Fairfax report today said businesses in the area faced possible lower insurance payouts if the siege was classified as terrorism, but a spokeswoman from the treasurer’s office said that was unlikely.
"At this stage, relevant claims estimates in relation to Martin Place total less than $1 million. At this level, the claims would be met by the insurers and are not large enough to involve claims on ARPC funds," she said.
"Businesses' entitlements to insurance payouts will depend on the terms of their current policies."
The only time insurance payouts would be lowered in such situations is when losses are "catastrophic", exceeding $13.6 billion.
The spokeswoman from the treasurer’s office said the government had been "talking with insurers and monitoring the situation closely."
"We are also working closely with relevant agencies as they carry out their investigations," she said.
"Any decision on declaring a terrorism incident will be made in the coming weeks."
The ARPC was set up in 2003 in the wake of the 9/11 attacks.
A spokeswoman for the ARPC told SBS there had been no claims of this nature made by insurers under the Terrorism Insurance Act since the organisation was set up.
Large parts of Martin Place were closed down and nearby businesses evacuated after gunman Man Monis held 17 people hostage inside the Lindt Café on December 15.
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