March 24, 2003 by Canadian Underwriter
A new study by the Council of Insurance Agents and Brokers (CIAB) is confirming anecdotal reports that many companies are not buying terrorism insurance although its has become more available following the passage of the Terrorism Risk Insurance Act (TRIA).
Almost 60% of brokers say that fewer than 10% of small commercial property accounts and less than 20% of mid-size accounts have bought the coverage. For large accounts, 48% of brokers say that less than 20% have bought terrorism coverage.
The reasons were split between the cost being too high and corporations believing that they were not terrorist targets. Another complaint from insureds is that the coverage being offered is not broad enough.
It was noted, however, that in the days leading up to the war with Iraq, more businesses bought coverage out of fear of retaliatory terrorist attacks.
When it comes to price, brokers report small and mid-size accounts are paying 10% of premium, while large accounts are paying 20% of premium or less.
“On balance, the market is significantly more stable with the Terrorism Risk Insurance Act (TRIA) than without it. However, cost and availability of coverage remain key issues,” says CIAB president Ken Crerar. “Small, relatively low-profile accounts seem to be able to find terrorism coverage at a reasonable cost, but many are opting not to buy it because they don’t think they are at risk. On the other hand, some of the riskier operations, with real exposures, choose to do without coverage because of the cost.”
He notes that the full set of TRIA regulations is not yet in place, and that insurers still face a significant financial risk even with the government backstop. In anecdotal reports from brokers, it is noted that some insurers still seem reluctant to offer the coverage despite the government reinsurance coverage, and even speculation some insurers may be pricing some risks excessively high in order to avoid having to write the risk altogether.