June 20, 2004 by Canadian Underwriter
Just as the U.S. Treasury Dept. confirms it will extend the Terrorism Risk Insurance Act (TRIA) to the end of 2005 at least, a new study shows insurance buyers are increasing purchasing the coverage.
On Friday, Treasury Secretary John Snow confirmed the “make available” portion of TRIA would be in place until the end of 2005, making the decision early than his September 1 deadline.
In the early stages of TRIA, which was instituted in 2002, uptake rates on terrorism coverage were quite low, but this trend is shifting, according to new data from international broker Marsh Inc. In the first quarter of 2004, the rate of U.S. businesses buying the terrorism coverage jumped to its highest level, 44%, since TRIA’s implementation. In the fourth quarter of 2003, about one-third of businesses purchased terrorism coverage. Moreover, the rate of uptake on terrorism coverage rose for all business size categories, although it was highest for large firms, at 63%. And all industry sectors saw increases in purchasing rates, with transportation showing the highest level at 57%.
Part of the reason may be the softening rate environment in other lines of business freeing up funds to put to terrorism coverage. “As the costs of their property insurance programs have become more manageable, more businesses are seeking to obtain protection against potential terrorism risks,” says Stephen Lundin, senior vice president of Marsh. “At the same time, a greater number of underwriters have been willing to price the coverage required under the Terrorism Risk Insurance Act at affordable rates and many are expanding the protection under their policies to include coverage for certain types of terrorism-related losses that go beyond the act’s requirements.”
While companies are paying more for their terrorism coverage now, this is generally because they are buying higher limits, he adds.
There are three forms of coverage buyers may be looking at: TRIA-backed coverage; complementary non-certified coverage; and/or separate, stand-alone coverage which does not require government certification.
Insurers, brokers and risk managers continue to solicit the government to ensure TRIA will be in place beyond the 2005 sunset provision, saying negotiations for coverage at the end of 2004 will be impacted by TRIA’s availability into 2006 and beyond.