Informe

The past year has been challenging for insurers that offer terrorism insurance and for organizations that purchase the coverage. The current uncertainty around the potential expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) — scheduled to expire on December 31, 2014 — has significantly affected the property/casualty insurance industry. In 2014, some employers with large concentrations of workers and companies with property exposures in major US cities have experienced limited terrorism insurance capacity and increased pricing, while others have not been able to purchase it at all. If Congress does not extend or renew TRIPRA, the market dynamics for terrorism insurance will be further disrupted and may result in increased pricing as capacity shrinks.

Originally enacted as the Terrorism Risk Insurance Act (TRIA) in 2002, the law was created in response to a severe insurance market shortage after the September 11, 2001, terrorist attacks. TRIA provides reinsurance coverage to insurers in the event of a certified terrorist act. The law was reauthorized in 2005 and again in 2007 as TRIPRA. This year’s decision to extend TRIPRA as is, extend with modifications, or allow it to expire has been debated in and out of Congress. Congressional activity in the late winter and early spring 2014 indicates that lawmakers likely will extend the federal terrorism insurance backstop with modifications before it expires.

This report summarizes the current outlook regarding TRIPRA’s potential expiration, provides benchmarking related to terrorism insurance takeup rates and pricing, and offers insights on alternative insurance and risk management solutions for terrorism risks that will be useful for organizations even if TRIPRA is renewed or extended.

Executive Summary

The pending expiration of the Terrorism Risk Insurance Program Reauthorization Act — the federal insurance terrorism backstop that is set to expire December 31, 2014 — is a key issue facing the insurance industry and organizations that buy terrorism coverage. The resulting uncertainty around TRIPRA has affected the availability and price of terrorism insurance. While recent congressional activity suggests that the law likely will be extended — when and with what type of modifications remains in question. This report examines TRIPRA’s impact on property/casualty insurance, take-up rates, pricing, alternative insurance and risk management approaches for terrorism risks, and related issues.

Among the key findings:

• The US Senate Committee on Banking, Housing, and Urban Affairs recently introduced a bill to reauthorize TRIPRA — with reforms to the program — for an additional seven years. The chairman of the US House Financial Services Committee, and a bipartisan group of its members expressed a desire to quickly move legislation that extends the law. These, among other developments, have begun to shift the debate from whether Congress will reauthorize the program to what reforms will be made to TRIPRA as it is extended.
• The cost of terrorism insurance coverage is expected to become volatile if the federal terrorism insurance backstop is not extended. TRIPRA’s uncertainty already has affected organizations that purchase property/ casualty insurance.
• Workers’ compensation insurers are evaluating what their business will look like absent TRIPRA, causing some to stop underwriting risks of employers in certain high-profile industries with large employee concentrations or in certain major cities.
• Many property insurance policies in 2014 were endorsed with sunset clauses that cancel terrorism coverage effective December 31, 2014, if TRIPRA expires. According to interviews conducted by Marsh in 2013 and 2014, approximately one-third of property insurers will include full-term terrorism coverage for policies extending into 2015. And almost half of the property insurers surveyed indicated that they will not offer standalone terrorism coverage after TRIPRA’s scheduled expiration.
• The Boston Marathon attacks in 2013 highlight the potential importance of including noncertified acts of terrorism on coverage forms and of corporate preparedness to maintain readiness in the event of a crisis.
• Larger companies are more likely to purchase property terrorism insurance, and also to see the lowest cost as a percentage of overall property premiums.
• Among industry sectors, education organizations had the highest take-up rate for terrorism insurance in 2013.
• Nearly all of the organizations that purchased terrorism insurance in 2013 did so as part of their property policies.
• Uncertainty around TRIPRA has caused some organizations to consider alternatives for their terrorism insurance programs. Many of these options can apply even if TRIPRA is extended, providing more options to better manage risks.