85 percent of insurers would pull terrorism risk cover if the Terrorism Risk Insurance Act (TRIA) expires, according to a new report by Aon.
The revelation comes as the broker calls on the US government to extend The Act, saying that it “remains the best solution for handling the terrorism insurance exposure in the US”.
The programme – developed after the September 11 terrorist attacks – created a federal backstop to ensure the availability of risk coverage offered through private markets in the event of a large-scale terrorist attack. As a result, the primary insurance industry has been able to provide affordable terrorism insurance coverage to US businesses across all industries. TRIA has enhanced the private market for such coverage and has had a stabilising influence on the economy overall.
In its written comment to the US Treasury Department, Aon advised that renewal of TRIA will ensure the continuation of a functional market for commercial property and casualty terrorism coverage.
“Today’s successful terrorism risk marketplace relies on the TRIA programme. TRIA minimises price volatility and coverage uncertainty. This makes TRIA reauthorisation imperative for our country and the economy,” said Aaron Davis, a managing director with Aon Risk Solutions, the firm’s global risk management business. “Should the programme expire, Aon’s market intelligence suggests that more than 85 percent of insurers will no longer continue to insure terrorism risk. Ultimately, in the unfortunate event of a large-scale attack, the US government would face the full burden of the associated costs of said terrorism.”
Ed Ryan, a senior managing director with Aon Benfield, the firm’s global reinsurance business, said: “The main hurdle in assessing and underwriting terrorism risk is that the frequency of loss from terrorism is neither predictable nor random. Therefore, terrorism insurance is unlike any other marketplace risk. The uncertainty surrounding terror risk makes insurance coverage unique and this requires a novel approach.”
Aon’s call for the TRIA extension came when Aon responded to the Treasury Department’s request for comment on the long-term availability and affordability of TRIA, which is set to expire December 31, 2014.
Aon, TRIA, terrorism, US, insurance, reinsurance