The Terrorism Risk Insurance Act has been met with mixed reviews by insurers and buyers, according to a report released by Chicago-based Aon recently.

While the main conclusion Aons “2003 U.S. Property Report” reached was that U.S. property insurance rates have begun a moderating trend, the report also said that many insurers and buyers see TRIA as “inadequate in its coverage and attracting low take-up rates.”

During the press conference at this years Risk and Insurance Management Society conference, Gary Marchitello, managing director of Aons National Property Syndication Group, said TRIA is a flawed mechanism, but nonetheless provides a needed boost to the industry in terms of the federal government providing reinsurance backstop for insurers.

“Although welcome, weve had a very anemic take-up rate by insureds,” he said. Mr. Marchitello noted that its purchase is voluntary and on average there has been only a 20 percent take-up rate on TRIA-offered coverage. “Clearly insurance buyers seem to be saying the price is too high.”

During 2003, “well see a price equilibrium point hit and we think were going to see more purchases going on,” predicted John Turner, chairman of Aons U.K. Global Risks division, who also said the take-up rate is low due to the clients perceptions that theyre not target risks.

He said average rates for TRIA coverage are about 14 percent of the overall property premiuma figure somewhat skewed by larger buying patterns among real estate risks, particularly in metropolitan areas. “If you were to take them out, I would hazard to say that the rate might be more in the 5-7 percent range,” he said.

He speculated that if the take-up rate remains anemic, the likelihood of a roll-over of TRIA would not be good. Despite their misgivings, including concerns that TRIA does not help organizations with global exposures, “most buyers expect TRIA to continue beyond 2004, albeit in a different form,” the report said.

Also included in the report are results of insurer interviews about new competitors in the U.S. property market. While the insurers said that the United States and London/Continental Europe continue to dominate the U.S. property business, most expect “Bermuda to increase market share over the next 12 months, with the possibility that it may usurp London/Continental Europe for second place,” according to the report.

“One Lloyds syndicate says it has seen a marked reduction in quality business, which has meant having to take on risks that are below the standard it might want,” the report said.

Separately at the conference, Wendy Baker, president of Lloyds North America, said Lloyds share of the U.S. reinsurance market continues to rise, despite predictions that new Bermuda companies would take away business.

Lloyds share of the U.S. reinsurance market rose from $2.7 billion in 2001 to $3.0 billion in 2002, while surplus lines rose from $4.3 billion in 2001 to $5.2 billion in 2002. The United States is Lloyds biggest market, accounting for 38-to-40 percent of its business, she said.

She also said that Lloyds write a little over 21 percent of the surplus lines market in the United States.

During the first quarter of 2003, across all lines of business, Lloyds saw rate increases in the range of 10-15 percent, she said.

“Lets all pray for a hard market. I know thats not the right thing to say to risk managers, but I think we all need to have a healthy marketplace and hopefully we are doing our best to help create that.”

Reproduced from National Underwriter Edition, April 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.