Congress may not fully address the renewal of the Terrorism Risk Insurance Act before the scheduled expiration of the law at the end of 2014, Marsh & McLennan Cos. warns in a new report.
That would mean insurers would not be obliged to offer terrorism coverage, which would make this insurance difficult to acquire at reasonable cost for many insureds.
Besides property coverage, the workers compensation market would likely be strongly impacted by the absence of, or a serious modification to, TRIA.
Pricing and capacity of Workers Compensation products would likely be strongly impacted, the report said.
The annual report was released the afternoon of April 30 as part of a panel discussion for the industry, members of Congress and congressional staffers held at the U.S. Capitol Visitors Center.
The meeting was sponsored by Marsh and the Coalition to Insure Against Terrorism, which represents a wide range of businesses and organizations throughout the transportation, real estate, manufacturing, construction, entertainment and retail sectors.
Participants included Dan Glaser, president and CEO of Marsh & McLennan Companies; Ed Walter, president and CEO of Host Hotels and Resorts, Inc.; Rodney Schraven, director of risk management for the Washington Metropolitan Area Transit Authority; and Ben Tucker, senior vice president of Marsh.
In a chilling reminder of how a delay or major cutbacks in the program might impact the U.S., the report says global unrest has begun to affect the terror reinsurance market–not only with regard to supply and demand but in terms of how risks and coverage are defined.
The report says the percentage of companies buying property terrorism insurance–the terrorism insurance take-up rate–has remained fairly constant since 2005 and has been in the low 60-percent range since 2009.
Larger companies are more likely to purchase property terrorism insurance, and also to see the lowest cost as a percentage of overall property premiums, the report states. Among industry sectors, media companies were the most likely to purchase property terrorism insurance.
The primary impact would be on insureds with significant exposures in a central business district of major cities, especially New York, Marsh & McLennan reports.
The Northeast had the highest terrorism insurance take-up rates on average, likely due to the concentration of population centers, perceived potential for terrorist attacks, and the fact that the region was targeted in the 2001 and other attacks.
The other potential primary impact will be on properties perceived as potential targets for terrorism attacks, and/or where there have been instances of foiled plots. Among industry sectors, media companies were the most likely to purchase property terrorism insurance.
A number of U.S. companies use captives to deal with terrorism risk, with Marsh managing a number of these units, the report says. Among U.S. captive insurers managed by Marsh, 25 percent underwrite at least one TRIA-specific (standalone) program.
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