Declining Rates, Increasing Demand Fuel Stand-Alone Terrorism Market

April 6, 2006

With the exception of a few notorious hotspots, overall rates for stand-alone terrorism insurance have dropped by 40-50 percent since 2002, according to an update on the market by Aon’s Crisis Management Division. The reductions have been driven by a steady growth in capacity coupled with a very favourable claims to premium ratio which has led to increased competition.

In the immediate aftermath of 9/11 the imposition of widespread terrorism exclusion clauses in insurance contracts coincided with a massive surge in demand for terrorism cover. Few options were available, with London, U.S.-based AIG and Bermuda the insurance markets of obvious choice. It was a seller’s market and many large companies, forced to make snap decisions to replace withdrawn cover, ended up buying very large limits at substantial premiums.

Since then the market has matured greatly.Capacity now stands at around $1.3 billion, premium rates have become much more predictable and have decreased significantly with reductions of 5-15 percent currently being achieved on many risks. At the same time, program designs are becoming more innovative.

Geographically, demand for cover is spreading much further as recognition of the terrorism threat increases. As a result, stand-alone insurers now are less dependent on U.S. risks which accounted for 50 percent of the market in the 12 months immediately following 9/11, although the U.S. is still by far the most significant market.

“The lack of any knee jerk reaction to the Madrid commuter train attacks and the events in London in July last year demonstrates the stand-alone insurance market’s maturity,” says Will Farmer, a director in Aon’s Crisis Management Division. “The debate over the extension of the Terrorism Risk Insurance Act (TRIA) at the end of last year highlighted the market’s growing importance. While government backed schemes such as TRIA have assisted in providing terrorism capacity, their effectiveness varies. The necessity of such schemes in countries where the private market is able to meet demand is questionable. The stand-alone market has a very important role to play going forward,” he added.

Topics USA Catastrophe Natural Disasters Trends Pricing Trends

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