Terrorism Insurance Availability, Affordability Improved since 9/11

Article excerpt

The availability and affordability of terrorism-risk insurance has improved following the Sept. 11, 2001, terrorist attacks as insurers have allocated additional capacity to risk insurance, prices have declined and purchase rates have increased, according to a White House report.

The President's Working Group on Financial Markets (PWG) report to Congress noted that the take-up rate--the percentage of companies buying terrorism coverage--increased from 27 percent in 2003 to 58 percent in 2005, while the cost of coverage has generally fallen to roughly 3 percent to 5 percent of total property insurance costs.

"These improvements have transpired in a marketplace that has had access to a federal backstop that has gradually contracted through the life of the temporary TRIA [the Terrorism Risk Insurance Act of 2002] program," said the report. "The general trend observed in the market has been that as insurer retentions have increased under TRIA and policyholder surpluses have risen, prices for terrorism risk have fallen and take-up rates have increased."

As we've already reported, the Terrorism Risk Insurance Extension Act of 2005 (TRIEA), P.L. 109-144, signed by President Bush at the end of last year, authorizes full, mandatory taxpayer reimbursement for federal assistance provided under the program, while significantly raising the deductibles and co-shares over current program levels.

Just as with the original TRIA, which expired at the end of 2005, TRIEA is designed to keep a temporary federal terrorism-insurance mechanism in place through 2006 to the end of 2007 until a permanent solution is crafted (see Mortgage Banking, January 2006, p. 97; and February 2006, p. 134).

The legislation also called for the formation of the PWG to perform an analysis regarding the long-term availability and affordability of insurance for terrorism risk that includes chemical, nuclear, biological and radiological (CNBR) risks and life coverage.

In contrast to the overall market for terrorism insurance, the PWG report noted there has been little development in the terrorism-risk insurance market for CNBR risks since the Sept. 11, 2001, attacks.

"Given that insurance companies have historically excluded coverage for these types of losses--even if not caused by terrorism--there may be little potential for future market development," the report stated. …