Marsh: More Firms Purchase Terror Insurance

Businesses believe terrorism insurance is a valuable risk management component, so slightly more firms have purchased it and retained it despite property insurance rate increases in 2005, according to an insurance brokerage.

Marsh, a subsidiary of the New York-based services firm Marsh & McLennan Companies, said 59 percent of companies in the United States purchased or renewed their property terrorism coverage in 2006, up one percentage point from 2005.

The report surveyed 1,437 businesses ranging in size from small accounts with total insured value of less than $100 million to major accounts with more than $1 billion in total insured value (TIV).

The Midwest saw the highest take-up rate (purchase of the coverage), growing from 58 percent in 2005 to 63 percent in 2006 of those surveyed. The Northeast dipped slightly, going from 67 percent to 66 percent. The South remained unchanged at 50 percent in the year-to-year comparison, while the West edged up 3 percentage points to 56 percent.

All regions showed substantial take-up from 2003. At that time the Northeast held the largest take-up rate at 30 percent.

Jill Dalton, a managing director in Marsh's North America property practice, told National Underwriter that while the overall take-up rate was not much from year to year, the take-up rate has increased substantially from 2003 because rates decreased as insurers became more comfortable pricing the product. The soft market in property pricing also gave clients more money to spend on more insurance coverage.

What was surprising, she said, was that after the 2005 hard market increases in property, businesses did not drop coverage as might be anticipated.

"Corporations see this as necessary coverage," said Ms. Dalton. "If they made the decision to buy it, they did not later make a decision to stop buying."

The cost of the insurance jumped from $50 per million of total insured value to $89 per million of TIV for companies with less than $100 of TIV.

Larger companies paid less for their insurance and experienced modest increases for their coverage. Companies of more than $1 billion TIV saw their terrorism coverage increase $6 to $40 per million of TIV.

The median percentage of terrorism premium to the overall property insurance program remained flat at 4.2 percent, the study said. However, terrorism pricing as a percentage of the total property premium remained the largest for major accounts at 5 percent, down slightly from the year before. Other accounts were at slightly more than 4 percent.

Marsh explained that the major accounts paid more terrorism coverage as a percentage of their property coverage because they tend to have more terrorism exposure and lower property rates "due to higher retentions and extensive loss control."

The Northeast accounts paid the highest median rate at $57 per million of TIV, up $10 from 2005 but substantially down from a high of $71 in 2004. The Midwest was the least expensive at $38, the same as in 2005 and only down $6 from its 2004 high.

Of the 15 industry groups the report lists, financial institutions, energy and real estate paid the highest median rates above $90 per million of TIV. Education paid the lowest median rate at $18 per million of TIV, followed by retail at $25 and health care at $27. Other industries ranged from $37 to $71 per million of TIV.