Terrorism Premium Price Seen Excessive
NU Online News Service, June 2, 9:11 a.m. EDT?The Terrorism Risk Insurance Act of 2002 has resulted in lower terrorism premiums, but many buyers still consider the price too high, a survey of U.S. commercial lines insurers by Moody's Investors Service has found.
Jim Bartie, a vice president at Moody's in New York and one of the survey's authors, said that the participants included the major commercial lines writers in the U.S., representing over 50 percent of commercial premiums.
Mr. Bartie noted that the survey, which was recently released, does not contain statistics on percentage increases or number of carriers offering certain coverages because these figures were still uncertain at the time the survey was conducted in February and March of 2003.
Regarding prices charged for terrorism coverage, the survey found post-TRIA premiums, especially for high-risk locations, are considerably lower than the "dislocation in prices" that occurred after 9/11. However, TRIA has not yet encouraged insurers to broadly offer terrorism coverage at prices most insurance buyers view as reasonable, the survey added.
On a positive note, the survey found that many of the insurers are offering terrorism coverage for free or for a relatively modest 1 to 5 percent of the non-terror premium for small and middle market accounts.
Some insurers, the survey discovered, are forgoing premiums not out of largesse, but because their systems cannot cope with the administrative burdens involved in charging for the coverage. "There are small and regional insurers that did not want the expense of sending the necessary notices and issuing the paperwork connected to pricing," said Mr. Bartie.
The survey also concluded that it remains difficult to obtain coverage for domestic acts of terrorism (which are not part of the TRIA "backstop" protection for insurers), as well as for any act involving nuclear, biological or chemical weapons. "TRIA doesn't require insurers to offer coverage for nuclear, biological or chemical events if they were already excluded by policies in force," Mr. Bartie noted.
In addition, stand-alone terrorism policies are rare, as insurers want to write the coverage in conjunction with an existing policy, explained Mr. Bartie.
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