Businesses With Terror Cover At 44%

Businesses With Terror Cover At 44%

NU Online News Service, Dec. 16, 10:58 a.m. EST?More than 44 percent of U.S. businesses obtained insurance to cover terrorism risks in the third quarter, a slight decrease from the previous quarter, Marsh Inc. brokerage said.[@@]

The New York-based firm, in its "Marketwatch: Property Terrorism Insurance Update?Third Quarter 2004" report, said the number of companies buying the coverage was still well above the 26 percent buying the protection during the same period a year ago.

Among buyers, large companies and financial institutions bought the greatest percentage of coverage.

The data was compiled by Marsh from more than 750 businesses and government entities that purchased or renewed property insurance policies in the third quarter of 2004.

Marsh's report said the demand for protection against terrorism exposures is holding steady. Meanwhile, the median rate for terrorism insurance as a percentage of total insured value declined slightly during the third quarter of this year.

Among firms that purchased property terrorism insurance in the third quarter of 2003, more than 95 percent renewed their terrorism coverage in the third quarter of 2004. During the past 12 months, the purchasing, or take-up, rate averaged 45 percent.

Among businesses buying or renewing coverage during the third quarter, the take-up rate for firms with total insured values of $500 million or more was 47 percent. It was 50 percent for firms with values of $100-to-$500 million, and 34 percent for those with values under $100 million.

A baseline Marsh report on terrorism insurance buying patterns for 2003 issued earlier this year found that nearly one in three businesses purchased the insurance in the fourth quarter of that year, which, according to the report, was then the highest purchasing rate for the coverage.

During the first quarter of 2004, the purchasing rate rose to 44 percent.

In the meantime, however, overall pricing for commercial property and other insurance lines has continued to soften, enabling businesses to free up funds to increase their purchases of terrorism insurance.

"The steady take-up rates can be traced to a widened awareness among businesses of potential terrorism exposures as well as to a competitive property insurance market," said Stephen Lundin, a managing director of Marsh and head of the firm's National Property Practice.

Mr. Lundin said, "Pricing and terms for commercial property insurance have continued to become more favorable for buyers during the past 12 months, which has enabled firms to use savings in program costs to obtain protection against terrorism risks."

Among industry sectors with statistically significant data sets, 75 percent of financial institutions and 61 percent of real estate firms purchased terrorism insurance during the third quarter of 2004. These organizations had the highest purchasing rates among the industrial sectors tracked by Marsh in the period. They were followed by education (59 percent), retail (55 percent), and habitation (52 percent).

In the aftermath of Sept. 11, insurance companies excluded terrorism risks from their commercial policies, Marsh noted. The Terrorism Insurance Act requires insurance companies to offer insurance for certain acts of terrorism in the U.S. that are certified by the Secretary of the U.S. Treasury Department, the Secretary of State and the Attorney General.

The terrorism coverage offered to insurance buyers under TRIA must be in amounts and have terms and conditions that do not differ materially from their other policies, Marsh said.

Marsh went on to say that as a complement to certified TRIA coverage, insurers are offering "non-certified" coverage, which includes coverage for terrorism risks outside the U.S. as well as terrorism in the U.S. arising from indigenous acts.

The broker said it found that more than three-fourths of companies that purchase terrorism insurance as part of their property placement do so on the combined TRIA/non-certified basis.

As a third alternative, businesses can purchase separate, stand-alone terrorism insurance policies that are outside of their property insurance programs and do not require U.S. government certification.

During the past 12 months, 9 percent of companies purchasing terrorism insurance have done so on a stand-alone basis, Marsh noted.