Terrorism backstop pushed at AAI conference

The need for government-backed terrorism reinsurance took center stage at the recent Alliance of American Insurers conference in Hamilton, Bermuda. A panel of industry experts spoke on the need for coverage in light of the withdrawal of reinsurers from the market following the September 11 terrorist attacks.
Terrorism may be an uninsurable risk, says Alice Schroeder, managing director at Morgan Stanley. She notes that because terrorism cannot be understood as a risk because no one knows where terrorists may strike next, how are insurers to quantify their exposure? “If you really think about terrorism, the purpose of terrorism is to invoke fear. Doing it in a very predictable way isn’t going to achieve that goal,” she says.
Terrorism insurance cannot be viewed through the same lens as other covers, notes Terri Vaughn, Iowa Insurance Commissioner and president of the National Association of Insurance Commissioners. She questions the idea of “target properties” paying high premiums for coverage from terrorism, which is essentially a public concern. Given that insurers must price these risks realistically, Vaughn alludes that there is a public interest in ensuring reasonably-priced coverage is available.
Vaughn also says that while she doubted the U.S. government would push through a terrorism coverage solution earlier in the year, she recognizes that the idea has picked up momentum recently. “When you start getting business leaders and union leaders out there saying ‘we are having problems, we can’t build a new hotel, we’re losing construction jobs because there isn’t any insurance available’that’s pretty powerful. And our sense is that that’s generating some good momentum. Whether that plays out into an actual bill, I can’t say, but I’m more optimistic certainly than I was in January.”
Speakers also drew attention to the changing market post-September 11. “There’s a level of underwriting going on today that I don’t think this industry has seen for the last 12 to 15 years,” says Ken Crerar, president of the Council of Insurance Agents and Brokers. “I think the quality of it has increased substantially, to the point that a lot of companies are finally getting a handle on the kind of business and the quality of business that they really have.”
Concentration of risks is one industry focus, says Vaughn. “We hear stories of insureds who have had insurance with a company for seven to 10 years and they’ve been non-renewed because the company just feels it’s a workers comp concentration or property concentration that they are not prepared to deal with in the current environment.”
Price increases are causing commercial insurance buyers to shift business to the excess and specialty markets, and captives, says Crerar. “The captive issue and the explosion of brokers being approached by clients about captives worries me to some extent,” he says. This is because he fears that the shift may result in the alternative market taking significant business away from traditional admitted market. “I think the alternative market is going to become THE market.”