COPENHAGEN - The European Commission has approved a Danish government scheme to cover potential insurance claims stemming from terrorist attacks with nuclear, biological, chemical or radioactive weapons, officials said on Wednesday.

The European Union's executive body approved the 15 billion Danish crowns (1.8 billion pound) scheme, recognising that the market for re-insurance against unlikely but high-impact events did not provide adequately for Danish insurers.

The decision will ensure that insurance coverage against certain terrorist risks is available on the Danish market, while at the same time ensuring that state aid and Single Market rules are respected, Competition Commissioner Neelie Kroes said in a statement.

The scheme favours the provision of insurance cover in an area where no or insufficient cover would otherwise be available, the Commission said, adding that it would have only a limited effect on competition.

The scheme under a bill passed by parliament in June 2008 is open to all Danish and foreign non-life insurers, it said.

The state will provide a guarantee on non-life insurance against damages from terror attacks with nuclear, biological, chemical or radioactive (NBCR) weapons that exceed a threshold initially set at 5 billion Danish crown.

The Danish government then provides a guarantee for the next 15 billion crowns worth of losses that exceed that threshold.

Property and casualty insurers like TrygVesta, Topdanmark and Royal & Sun Alliance's Codan would automatically subscribe to the terrorism coverage scheme along with all other P&C vendors in the Danish market, officials said.

(Reporting by Peter Levring and John Acher; Editing by Mike Nesbit)