Marsh’s 2013 Terrorism Risk Insurance Report has found that take-up of terrorism coverage remains buoyant in the US despite limited attacks since September 11th, with around 60 percent of firms continuing to purchase such coverage.
The Boston bombings have however helped to once more raise the spectre of terrorist attacks, encouraging a sharpening of pencils within the re/insurance industry, but it is apparent that the reauthorisation of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is the key issue facing the sector.
The release of Marsh’s report coincides with an event hosted by the Coalition to Insure Against Terrorism, a lobbying group that is looking to persuade Congress that a reauthorisation of TRIPRA is in the interest of consumers and the insurance industry. The Boston attacks are likely to throw into sharp relief the ongoing need for government support for insurers, with Marsh highlighting the fact that terrorism coverage is often included in mandated workers’ compensation policies.
Dan Glaser, president and CEO of Marsh & McLennan Companies, said that TRIPRA “plays a major part in the availability and affordability of...[terrorism] coverage”, with Marsh evidently keen that the federal backstop does not expire in 2014. The Marsh report suggested that without federal support fewer insurers would offer terrorism insurance, with pricing inevitably rising as a result.
The federal terrorism backstop has been renewed twice since its inception in 2002, but there is evidently concern that intransigence on Capitol Hill might potentially derail a reauthorisation. As Ben Walter, CEO of Hiscox USA, indicated when talking with Bermuda:Re following the Boston attacks, “it won’t take a ‘no’ vote to kill the bill. If Congress does nothing to reauthorise the bill, it simply goes away. And with intransigence a feature of Congress at present, no action is a possible outcome”. Should a reauthorisation not materialise, it could throw up opportunities for those offering capacity in the standalone market.
Bermuda:Re spoke with Martin DePoy, Steering Committee Coordinator at the Coalition to Insure Against Terrorism and Ben Tucker, senior vice president of Marsh’s Property Specialized Risk Group about the report’s findings and their expectations regarding a reauthorisation of TRIPRA.
DePoy – “The Marsh report underscores the need for continuing the current federal terrorism risk reinsurance programme. In the twelve years since 9/11, a private sector market for terrorism risk reinsurance has failed to re-emerge. This is because the unique characteristics of terrorism seriously hamper the development of any workable reinsurance alternatives to TRIPRA. Consequently, the federal government’s continued participation in the marketplace is required to ensure the availability and affordability of terrorism risk insurance. Without it, US businesses and their employees will be needlessly exposed to losses from future terrorist attacks.”
Is there an expectation that terrorism insurance buying behavior will change as a result of Boston?
Tucker - We think yes this could have some influence on terrorism insurance buying behavior, but it is too early to say yet if this will be significant.
As reported on in the 2013 Marsh Terrorism risk insurance report, a relatively high percentage of companies across the US, and in particular in the Northeast, already buy TRIPRA, so overall the percentage change in the take up rate may not be that significant.
How significant has TRIPRA been in sustaining terrorism coverage buying behavior since 2002?
Tucker - We believe it has been very significant for a couple of reasons. First, subject insurers are mandated to offer TRIPRA for subject lines of insurance, and secondly, pricing for TRIPRA coverage has generally been considered affordable by most companies.
Does Marsh believe the standalone market would prove prohibitively expensive for buyers of terrorism coverage if TRIPRA did fail to be reauthorized?
Tucker - In many cases yes - in particular for iconic buildings, industries typically considered targets, and in central business districts.
Marsh, TRIPRA, terrorism, Boston, reinsurance, US