TRIA, ART Fill Terrorism Coverage Gaps

Mr. Cahalan explained that prices for the coverage started getting better two years ago. "Now we are able to have adequate coverage," he said. "In the last year weve seen a liberalization of the sub-limits for it. Terms and conditions are better."

However, with TRIA due to expire at years end unless Congress votes to extend it, whether risk managers will be able to buy terrorism coverage at any price is a huge question. "How the expiration of TRIA will affect that is anybodys guess," Mr. Cahalan added.

KeySpan has renewals throughout the year, with its biggest renewalpropertydue on March 1, he noted. "The good thing, and Ill say this tongue-and-cheek, is that we are located in the outer boroughs [of New York City]," he said. "People who are located in Manhattan are thought to be at a higher risk."

Mr. Cahalan added that the organization supplements its coverage with a captive insurer domiciled in Vermont, which it formed last year. "We run some of our property through that," he said. "We have high deductibles on things like power plants$2.5 millionand we run a primary layer through our captive because we couldnt get the commercial markets to come down to that level."

During the last renewal, he said, insurers "wanted to attach a minimum of $5 million. So we wrote this primary layer in the captive and we have the commercial market attached at that point."

Previously the organization had a rent-a-captive, he explained, because as a public utility holding company, it is governed by statutes requiring Securities and Exchange Commission approval for any subsidiaries that KeySpan set up. "So it took us a couple of years to get the SEC to approve the captive," he said. The name of the captive is KeySpan Insurance Co., he said.

But Lance Ewing, vice president of risk management at Caesars Entertainment in Las Vegasowner of Caesars Palace, the Flamingo and the Paris, among other casinossaid that as a rule the organization does not purchase terrorism coverage.

"Because of the price for terrorism coverage and the limits as well as the coverages provided, the squeeze is not worth the juice for us," he said.

He continued, however, that the overall situation for terrorism coverage is improving. "We do have one stand-alone coverage for one particular property," he noted.

Although that coverage was reasonably priced, he added, it took some "heavy lifting to get the appropriate Lloyds syndicates cobbled together to get us the coverage we were looking for," noted Mr. Ewing, who is immediate past president of the Risk and Insurance Management Society.

Under workers compensation coverage, he said, rates for huge catastrophic exposures "have not come down to levels in which I think many carriers have a comfort level." He added that large concentrations of employees in high-profile targets continue to be a concern to underwriters.

He explained that TRIA has benefited those risk managers who have been able to "run that through your captive, so that you would have the ability to tap into TRIA as a carrier."

Some resolution needs to be reached for TRIA extensionand soon, he said. "There is not a comfort level among the risk management community or the insurance community as to what their alternatives are," he said, adding that it is in the best interest of the U.S. Treasury Department, carriers, brokers and risk managers to meet and "come up with a reasonable solution."

Other alternatives that need to be explored include "preventative actions and diligence on our part" to potentially mitigate a terrorist attack.

Mr. Ewing said his organization is working together with Clark County, Nev., its homeland security director and department, as well as property underwriters to mitigate terrorism risks.

The company also is looking at risk modeling, he said, which includes assessing hypothetical situations. One such scenario, he said, might be "if two tractor trailers of anthrax would let go relatively close to one of our casinos, what type of situation would occur?"

Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 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.