Terror Cover Buyers Few Few commercial customers are purchasing terrorism insurance because they believe their exposure is minimal or the coverage is too expensive, according to a survey by a insurance brokers group.
The report was released by the Council of Insurance Agents and Brokers. CIABs 212 members, representing the United States largest insurance brokerage firms, were polled between Feb. 28 and March 17. CIAB said businesses, prompted by fears of terrorist retaliation, were stepping up purchases of the coverage as the war approached.
In the survey, 49 percent of the responding brokers said that less than 10 percent of their clients have purchased the insurance. On the other end of the spectrum, only 6 percent said all of their clients purchased the coverage.
The survey broke the results down by three account sizes: small accounts, generating less than $25,000 in commission and fees; medium size accounts, generating commission and fees of between $25,000 and $100,000; and large accounts, with commissions and fees of more than $100,000.
Looking at the results by account size, 59 percent of the brokers said that 10 percent or less of their small accounts purchased the coverage, while 38 percent of the brokers said that 10 percent or less of their largest accounts purchased the insurance. Forty-eight percent said 10 percent or less of their mid-size clients purchased the insurance.
For 61 percent of the clients purchasing terrorism insurance, the price amounted to 10 percent or less of their overall insurance costs.
Of the total, 74 percent of the small accounts terrorism cost amounted to 10 percent or less of the clients overall insurance premium. Sixty-two percent of medium-size accounts and 46 percent of the largest accounts paid 10 percent or less of their total insurance costs to terrorism insurance.
Terrorism insurance amounted to between 11-to-20 percent of the total insurance bill for 18 percent of clients. And 7 percent of the brokers clients found terrorism cost to range between 21-to-30 percent of their total insurance costs.
Ken Crerar, president of the Washington, D.C.-based association, said the Terrorism Risk Insurance Act created market stability, "however, cost and availability of coverage remain key issues.
" Small, relatively low-profile accounts seem to be able to find terrorism coverage at a reasonable cost, but many are opting not to buy it because they dont think they are at risk. On the other hand, some of the riskier operations, with real exposures, choose to do without coverage because of the cost."
The survey found no areas or business lines that were not experiencing some difficulty obtaining the coverage. CIAB said some high-risk exposures are finding a tight market. It quoted unnamed brokers reporting coverage price demands of 100-to-105 percent of the property rate.
However, Don Griffin, assistant vice president, business and personal lines for the National Association of Independent Insurers trade group in Des Plaines, Ill., rejected findings of a tight market for some risks.
The Terrorism Risk Insurance Act makes it mandatory for companies to provide coverage, he observed. Mr. Griffin noted there has been at least one insurer who formed a specialty company to write terrorism insurance that may fold because of a lack of interest.
"If the market was that tight, they would still have the business," Mr. Griffin suggested.
Roger Kenney, associate vice president of research for the Alliance of American Insurers in Downers Grove, Ill., said CIABs study echoed others that found many "who feel they are not exposed to an international terrorism risk."
Discussing affordability, he remarked, a lot of people thought when TRIA was passed "that there would be a reinsurance backdrop, that the coverage would then be affordable, but Im not sure that was necessarily a realistic expectation."
Terrorism risk has no historical underwriting basis, he noted, and that fact, despite the best modeling available, makes pricing difficult. "Uncertainty leads to higher cost," he observed.
Rita Nowak, assistant vice president with the Alliance, speculated that at renewal time, as events like the war in Iraq impact, demand may increase.
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.
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