How Terrorism Reinsurance Law Uncertainty Affected Market

June 29, 2015

After a slight dip in the wake of the brief lapse of the terrorism reinsurance program in early 2015, terrorism insurance market conditions are steady again, although there have been some noteworthy changes in behavior, insurance broker Marsh said in a new report.

The enactment of TRIPRA— the Terrorism Risk Insurance Program Reauthorization Act of 2015 — renewed the program through 2020 and “brought greater certainty to organizations that depend on terrorism coverage and blunted any short-term increase in pricing that may have been caused by the law’s temporary lapse,” Marsh said in its 2015 Terrorism Risk Insurance Report.

Through much of 2014, there was plenty of uncertainty as to whether Congress would renew the program, which was initially passed in the wake of the Sept. 11, 2001 terrorist attacks at New York’s World Trade Center and the Pentagon. Marsh noted that in the short term, that period where anticipated Congressional action was a mystery spurred some customers to act differently.

For example, Marsh said that terrorism insurance take-up rates have been relatively stable since 2009. However, they dipped a bit in 2014 due to anxiety about whether Congress would renew federal terrorism coverage at the end of that year. The new law will likely nudge the take-up rates of embedded TRIPRA coverage to revert to normal levels, the report said.

Another shift evolved from TRIPRA’s anticipated tweaks to the old law that included aising the trigger amount needed in total losses before federal reinsurance coverage kicks in from $100 million to $200 million over five years, starting in 2016. Marsh said that uncertainty about TRIPRA’s renewal, plus the potential terms of the new law, “prompted some organizations to look for certainty of coverage elsewhere, namely the standalone property terrorism insurance market.”

Here are Marsh’s other major findings:

  • Underwriters are still scrutinizing employee concentration exposures. This shows the importance of accurate data and risk differentiation, particularly for workers compensation exposures.
  • Organizations that snatched up terrorism coverage in the first part of 2015 saw competitive rates (in general) from standalone property terrorism insurers.
  • Organizations can benefit from the ability of captive insurance companies to access the federal terrorism insurance program. But few U.S. captives actually did so in 2014.
  • Larger companies are more likely to sign up for property terrorism insurance. In doing so, they see the lowest cost as a percentage of overall property premiums.

Educational organizations had the highest take-up rate for terrorism insurance in 2014 among industry sectors.

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