The long-term viability of the U.S. property terrorism insurance market is back in the spotlight as Congress looks at renewing the federal reinsurance backstop, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which is set to expire in Dec. 31, 2020.
Global insurance broker Marsh’s 2019 Terrorism Risk Insurance Report concludes that the property terrorism insurance market remains strong with sufficient capacity to respond to today’s main terrorist threats in part due to TRIPRA.
It also matters that there have not been many claims.
According to the report, although there have been no certified terrorism losses in the U.S. since the original federal terrorism reinsurance program (TRIA) was passed following the Sept. 11, 2001 attacks, this federal program and similar programs in other countries are still “crucial to the continued health and stability of the property terrorism insurance market.”
Marsh analysts suggest that if it appears Congress will not renew TRIPRA before it expires, there could be various market effects. Some insurers may insert sunset clauses in renewal policies while others may increase prices or limit their writings, perhaps to preferred locations. Some insurers will have to purchase additional private reinsurance and the influx of new buyers simultaneously into the reinsurance market could affect pricing. Reinsurers are also likely be selective in providing additional capital, which could pose a capacity problem for some businesses in high profile cities and employers with significant workers’ compensation accumulations, according to the report.
“The existence of government backstops, like TRIPRA, has played an important role in ensuring the continued stability and health of the global property terrorism insurance market,” said Tarique Nageer, Terrorism Placement Advisory leader for Marsh.
He said “all eyes are on the Congressional schedule” as the 2020 deadline nears.
“In the meantime, U.S. businesses and organizations are advised to work with their brokers as soon as possible to map out a strategy to mitigate potential disruption,” he said.
The percentage of U.S. companies purchasing terrorism coverage embedded in property policies under TRIPRA remained consistent at 62% in 2018, the report says. Educational, media, financial institutions, and real estate organizations had the highest terrorism insurance take-up rates by industry in 2018.
According to the report, the predominant terrorism threat globally remains from “extremists focused on inflicting mass casualties in unsophisticated attacks on crowded public spaces rather than large-scale property damage.” Over the last few years, the global property terrorism insurance market has responded by expanding coverage, most notably in the development of coverage for active assailant events and non-damage business interruption, Marsh says.
“The market for property terrorism insurance remains competitive for most buyers, due in recent years to a steady decline in the number of global terrorist incidents and minimal insurance claims,” the report says. From May 2018 through May 2019, terrorism risk ratings fell across 116 countries, most notably in Egypt, Turkey and Spain. Over that period, risk ratings fell in 116 countries, while increasing in only 34. Little improvement, however, occurred in the world’s riskiest states for terrorism, including Afghanistan, Yemen and Iraq.
The number of lives lost to acts of terrorism and politically or ideologically motivated violence fell again in 2018, the report adds, citing Jane’s Terrorism and Insurgency Centre data.
Despite the trend of decreasing risk, Marsh cautions that new threats will arise. The report points to events that will likely affect terrorism risks in 2019, including the territorial defeat of First, Islamic State (IS) that the report warns will likely bring new threats both in the Middle East and in Western states.
Religious extremism is expected to remain the dominant terrorism threat globally, but the threat from the “extreme right-wing groups” is also expected to rise in Western states, most likely in the firm of “low-capability attacks that “generate little property damage, but pose significant risks to people.”
The report says that attacks by lone wolves and small groups are happening more often and there is rising concern over terrorist incidents occurring in or near workplaces.
Source: Marsh’s 2019 Terrorism Risk Insurance Report
*This story ran previously in our sister publication Insurance Journal.