Expiration could also up cost of terrorism insurance

The number of insurers offering terrorism insurance could drop and prices may increase if the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is allowed to expire or is reformed, a report by Marsh has found.

The report was published as the US Congress considers the reauthorisation of TRIPRA – due to expire on 31 December 2014.

The Act was initially enacted as a response to September 11, 2001 attacks, which saw severe market shortages for terrorism insurance. This prompted the US Congress to pass TRIPRA (formerly Terrorism Risk Insurance Act), creating a federal “backstop” for insurance claims related to terrorism events in the US.

However the report warned that if the act is allowed to expire or undergoes major changes, “terrorism insurance capacity may be difficult to acquire at reasonable costs for insureds, especially those with significant exposures in a central business district or major city”.

Marsh surveyed nearly 2,600 companies and found that the percentage of businesses buying property terrorism insurance has remained fairly constant since 2005 and has been in the low 60% range since 2009.

Premium rates also remained steady for terrorism coverage. Companies with total insured value (TIV) of less than $100 million paid a median of $49 per million of TIV in 2012, the same as in 2011, while the median rate paid by companies with more than $1 billion in TIV was $19 per $1 million TIV in 2012 – down from $21 in 2011.

Speaking at the report’s launch event in Washington D.C, Marsh & McLennan Companies president and CEO Dan Glaser said: “Clearly the demand for terrorism risk insurance remains strong and the existence of the federal program plays a major part in the availability and affordability of the coverage.”

Other highlights from Marsh’s report include:

  • Larger companies are more likely to purchase property terrorism insurance;
  • Media clients purchased property terrorism insurance at a higher rate (81%) than any other sector in 2012;
  • Companies in the healthcare, financial institutions, education, and public sectors had the next highest take-up rates among the 17 industries surveyed – all at above 70%;
  • Construction companies paid the most of any sector for terrorism insurance, with a median rate of $63 per million of TIV in 2012, up from $54 per million in 2010;
  • Companies in the food and beverage, healthcare, and education sectors paid the least for coverage, with median rates less than $20 per million;
  • More companies in the Northeast, 77%, purchased property terrorism insurance than in any other region. The West saw the lowest take-up rate, at 53% in 2012;
  • Companies in the Midwest paid the lowest rates on average for property terrorism insurance in 2012, followed closely by companies in the West.

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