Pricey Terrorism Coverage Might Put Heat On Insurers

Pricey Terrorism Coverage Might Put Heat On Insurers

After an intense political battle to pass the Terrorism Risk Insurance Act late last year, providing federal reinsurance for primary carriers, most buyers have been anything but bullish in buying the coverage, a survey by the Council of Insurance Agents and Brokers has revealed.

TRIA mandated that insurers offer terrorism coverage to their commercial policyholders, but buyers have been timid about signing on, the survey showed.

The reason behind this buyer reluctance is three-fold.

For one, many are not buying because they believe they are not prime targets of terrorism.
Second, even some who would like the coverage, if only to sleep more soundly, are blanching at the price and choosing to go bare.
Third, some buyers say the coverage isn't broad enough to do any good, the CIAB survey found.

The brokers surveyed by the Washington-based CIAB noted that as war with Iraq approached, more firms were buying terrorism coverage out of fear of retaliatory strikes.

However, the bigger picture showed that about 60 percent of brokers reported fewer than 10 percent of their small commercial accounts and less than 20 percent of medium-sized accounts bought terrorism coverage.

Even among the larger accounts, the early results are discouraging–48 percent of brokers said fewer than 20 percent of these jumbo clients have coverage.

The CIAB survey found that most small- and medium-sized accounts are being assessed 10 percent of premium for the additional exposure, while large accounts typically are paying 20 percent of premium or less.

However, a number of brokers complained that some insurers are charging 100 percent of premium or higher to any business in a perceived high-risk area for terrorism, effectively pricing these companies out of the market.

Members of Congress will undoubtedly soon be taking a close look at how the terrorism market is panning out after TRIA, and they probably won't like what they see.

While TRIA addressed the problem of availability by requiring insurers to at least offer the coverage, the fact that so many firms are taking a pass, often due to price, might tempt the feds to step in and establish some sort of rate regulation–exactly the fear of many who oppose federal oversight.

Carriers need to make sure they have a sound basis for the rates they charge, because they might very well have to defend their underwriting and pricing practices to Congress.

In addition, agents and brokers must make sure their clients understand the risk they are taking by going bare. After all, no one would have anticipated Oklahoma City as a terrorist target. Even though that was a domestic incident (which would not be covered under TRIA), the bigger point is that with the kind of security measures being taken in the major cities, locations not normally considered “high-risk” might indeed be vulnerable.

After waiting until the 11th hour, Congress finally passed TRIA to alleviate availability concerns. A second bill to address affordability could be much more onerous for insurers.

Reproduced from National Underwriter Edition, March 31, 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.