The private market does not have the capacity to provide reinsurance for terrorism risk to the extent currently provided by the Terrorism Risk Insurance Act, according to the “The Long-Term Availability and Affordability of Insurance for Terrorism Risk,” report just released from the President’s Working Group. And, without TRIA, terrorism risk insurance would be less available, more costly and have limited scope.
The President’s Working Group (PWG) also found insurance for terrorism risk is available and affordable, and has not changed appreciably since 2010. Prices for terrorism risk insurance vary depending on the policyholders’ industry and the location of the risk exposures, PWG said. Prices have declined since TRIA was enacted and in aggregate currently approximate 3 to 5 percent of commercial P&C premiums. PWG also said the percentage of policyholders that purchase coverage for terrorism risk has improved since TRIA and are 60 percent in aggregate, as compared to 27 percent in 2003, the first year TRIA was in effect. The market is tightening due to uncertainty that TRIA will be renewed.
“PCI is pleased that a majority of the key findings in the PWG report support the views of PCI and its member companies,” said Robert Gordon, SVP policy development and research for the Property Casualty Insurers Association of America. “A long-term reauthorization of TRIA is needed to provide affordable terrorism insurance and the private market does not have the capacity to provide reinsurance for terrorism risk to the extent currently provided by TRIA. As the uncertainty as to whether TRIA will be renewed grows, the market continues to tighten.”
PCI also said increasing the industry share through the co-share, deductible, or trigger will affect the availability and affordability of terrorism insurance for consumers.
“While we are encouraged by the report, we are concerned with any effort to increase insurer retentions as this could lead to decreased market capacity,” said Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA). “The private sector has not developed the financial ability, and the significant levels of capital to create the necessary capacity to cover large-scale losses that result from a terrorist attack. With private reinsurance capacity of just $6-8 billion and approximately $34 billion in exposure retained by insurers that write terrorism coverage, there remains a significant gap in private reinsurance capacity to handle the peril.”
Charles Symington, SVP for external and government affairs at the Independent Insurance Agents & Brokers of America (IABA), commended the PWG and said IABA agrees with many of the report’s findings. “The TRIA program deserves an extension of some form in order to ensure the continued availability of terrorism coverage, and we look forward to working with the House Financial Services Committee and the Senate Banking Committee on their proposals,” he said.
TRIA requires insurers offering certain lines of commercial P&C insurance to participate in the Terrorism Risk Insurance Program and requires them to make coverage available for insured losses from certified acts of terrorism that do not differ from the terms, amounts and coverage limitations applicable to losses arising from other events.
Terrorism Risk Insurance Program (TRIP) doesn’t mandate any price for coverage and premiums are subject to state regulatory authority. TRIA doesn’t require policy holders to purchase insurance for terrorism risk, and if a policy holder declines coverage, an insurer may negotiate an option for partial coverage, if permitted under state law.
