David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
There are now limited expectations of terrorism insurance being addressed in Congress before TRIPRA’s expiration in 2014. If TRIPRA is not extended or is substantially modified, there will be an impact on embedded terrorism insurance coverage, standalone terrorism pricing/demand for capacity and TRIPRA captive placements.
Should TRIPRA not be extended, we would expect terrorism insurance to be greatly reduced in areas of the United States that have the most need for coverage (including central business districts and other high risk areas). This would predominantly impact property fire insurance. In other lines of insurance, such as workers’ compensation, where terrorism insurance is mandated whether or not TRIA is available, we would expect insurers to severely curtail their writings of risks in areas that have the highest risk, and thus the greatest need for the coverage.
We would also expect terms under any offer to include limitations that facilitate market aggregations - specifically reducing contingent coverage for events where service providers, such as power stations or other infrastructure, have been the target of an attack. It is probable that terrorism insurance under property would be limited to the policyholders’ location. Pricing for terrorism insurance, meanwhile, could dramatically increase in a number of metropolitan areas and for numerous occupancies around the United States.
In the absence of the TRIPRA backstop, we would not expect the needs of policyholders to be met with regards to terrorism insurance. Many policyholders would be left to self insure the entire risk or portions of the risk, meaning any future terrorist acts could have a negative impact on U.S. economic activity. This could also lead to a reduction in the competitiveness of the United States in the global marketplace, where a number of countries offer government supported terrorism risk transfer solutions that are likely to remain available.
Although the standalone terrorism market continues to remain an alternative to TRIA coverage offered as part of property all risk policies, it is not sufficiently large for regions that have the highest demand for insurance to meet the needs of all policyholders. Coupled with limited availability of standalone reinsurance capacity and continued limitations in the perceived reliability of terrorism risk models, the insurance markets are not well positioned to be an alternative to some form of TRIA or other government-mandated and supported terrorism risk transfer mechanisms in the United States.