This article laments that the TRIA coverage is often rejected by clients, and proposes “that the U.S. Congress consider proposals to increase the number of businesses buying terrorism insurance by lowering its price. It says this could be done without increasing costs to taxpayers by changing the terms of federal reinsurance.”
I fail to see how the cost to the tax payer can be lessened without shifting the cost to either the policy holder or the carriers.
The policy holders are not willing to pay more, and this government program stopped the market mechanism before it could price this coverage to offer varing terms and prices to meet the needs of the market.
The coverage is not useful to most buyers of insurance – As structured, only large, high risk and high visibility targets would rationally buy this coverage. Small buildings (below $5,000,000 in value) have virtually no exposure yet most carriers charge 3-5% of the property premium.
The chief benefit of this coverage was to give the impression of action. It does not fill a useful role in the insurance market, and is sold almost exclusivly because mortgagees who do not understand the limitations of the coverage force insureds to buy it. I supose it looked good to the politicians for the Sunday talk shows.
In this case, the report is correct that carriers do not want to sell it, and buyers do not want to buy it. It exists only because the USG forces carriers to offer it, and clients must decline in writing or they are forced to take it. The rational is that by spreading the risk the cost is lower. Perhaps we could lower the cost of Earthquake coverage in Califorina and Hurricane Coverage in Florida if we forced everyone in the county to share in the cost.
Perhaps we should simply have the market price this coverage like all other, and let the clients decide it they have a need to lay off this risk for a premium set by the market or if they choose to bear the risk themselves. If mortgagees wanted to insure this peril in thier portfolio, we have a market mechanism to offer and price this risk transfer.
The market works without the heavy hand of government. Perhaps we should let the market work. Toby Turner
This article laments that the TRIA coverage is often rejected by clients, and proposes “that the U.S. Congress consider proposals to increase the number of businesses buying terrorism insurance by lowering its price. It says this could be done without increasing costs to taxpayers by changing the terms of federal reinsurance.”
I fail to see how the cost to the tax payer can be lessened without shifting the cost to either the policy holder or the carriers.
The policy holders are not willing to pay more, and this government program stopped the market mechanism before it could price this coverage to offer varing terms and prices to meet the needs of the market.
The coverage is not useful to most buyers of insurance – As structured, only large, high risk and high visibility targets would rationally buy this coverage. Small buildings (below $5,000,000 in value) have virtually no exposure yet most carriers charge 3-5% of the property premium.
The chief benefit of this coverage was to give the impression of action. It does not fill a useful role in the insurance market, and is sold almost exclusivly because mortgagees who do not understand the limitations of the coverage force insureds to buy it. I supose it looked good to the politicians for the Sunday talk shows.
In this case, the report is correct that carriers do not want to sell it, and buyers do not want to buy it. It exists only because the USG forces carriers to offer it, and clients must decline in writing or they are forced to take it. The rational is that by spreading the risk the cost is lower. Perhaps we could lower the cost of Earthquake coverage in Califorina and Hurricane Coverage in Florida if we forced everyone in the county to share in the cost.
Perhaps we should simply have the market price this coverage like all other, and let the clients decide it they have a need to lay off this risk for a premium set by the market or if they choose to bear the risk themselves. If mortgagees wanted to insure this peril in thier portfolio, we have a market mechanism to offer and price this risk transfer.
The market works without the heavy hand of government. Perhaps we should let the market work. Toby Turner