April 28, 2005 by Canadian Underwriter
Almost half of all large and mid-sized U.S. businesses purchased terrorism insurance in 2004, a significant increase over recent years, according to new research issued by brokerage Marsh.
In 2003, just 27% of businesses had opted to buy the coverage, but 2004 is a different story. Of firms with total insured values over US$1 billion, 53% took up the cover, while 57% of companies with insured values between US$500 million and US$1 billion, and 50% of companies with insured value above US$100 million, did so. The number drops based on the size of corporation and small businesses were much less likely to pick up the coverage.
Price does not seem to be the determining factor Marsh notes that property terrorism rates were stable between 2003 and 2004. “Clearly, several factors can influence a company’s decision to purchase property terrorism insurance,” says Stephen Lundin, a managing director in Marsh’s property practice. “In addition to considering the pricing of property terrorism insurance and its terms, many businesses are making decisions based upon their perception of risk.”
Not only were larger firms picking up the coverage, but businesses in the northeast U.S., specifically in cities like Boston, Chicago and New York were more likely to buy the cover. Not surprisingly, Washington, D.C. has the highest rate of property terrorism coverage in place, followed by New York.
Marsh used the study’s release as a chance to call for the U.S. government to extend its Terrorism Risk Insurance Act (TRIA) program beyond its December 31, 2005 sunset. “If TRIA is not extended, the stand-alone insurance market is unlikely to have sufficient capacity to satisfy all of the expected demand at commercially viable prices,” Lundin says. “Further, under those circumstances it’s unrealistic to expect insurers to maintain their present terrorism capacity or to expect the reinsurance market to fill the void.”