Eighty percent of the leading commercial property/casualty insurance brokers say the federal Terrorism Risk Insurance Act (TRIA) should be extended when it expires at the end of 2005, according to a survey released today by the Council of Insurance Agents & Brokers.
The CIAB represents the nation’s largest commercial insurance brokers who write 80 percent of the property/casualty premiums and administer billions of dollars of employee benefit accounts annually.
“Half of the commercial brokers responding to the survey said fewer than 20 percent of their clients are actually buying the federally backed terrorism coverage,” said the bulletin. Reasons cited included “the high cost of coverage and their clients’ belief that they are not likely to be targets of terrorism.”
The survey, however, concluded that among those brokers who responded most were concerned that “if TRIA were allowed to expire, the properties that need the coverage the most would be unable to find it.”
The CIAB cited the remarks of one Northeastern broker who indicated that “TRIA has not motivated the reinsurance markets to provide terrorism cover. Without TRIA, primary carriers will revert to excluding coverage. While mostly a problem for the larger commercial risks in high profile cities and regions, a lack of coverage would have a negative effect on the economy, jobs and society.”
It also cited a broker from the Midwest, who stated that “Carriers are already voicing concerns they cannot afford another large event. If it (the federal backstop) is not extended, the number of clients and locations will increase that cannot obtain terrorism coverage. The commercial property development market will have problems.”
The CIAB noted that “About 70 percent of the respondents said they thought terrorism coverage was more available now than was the case a year ago, at least partly because there has not been another incident of terrorism since the 9/11 attacks.” However, as another broker observed, “It is offered on most everything, and most accounts decline it. It doesn’t seem to be on people’s minds as much anymore.”
CIAB President Ken A. Crerar said the survey shows that the insurance marketplace is being driven more by the requirements of law than by any greater capacity for terrorism coverage. “Because negotiations over renewals for large accounts typically begin several months before the policy renewal date, we could start seeing the impact of the expiration of TRIA as early as this fall for January 2005 renewals,” he stated. “Lawmakers need to realize when evaluating a TRIA extension that some carriers may choose not to renew a yearly contract on a high- profile property if it means that for a short period of time, there would be no federal protection in the event of a terrorist act.”
A number of brokers responding to the CIAB survey noted that in the case of domestic acts of terrorism, which are not covered by TRIA, only limited coverage is available and it is often linked with a client buying TRIA coverage.
Stand-alone domestic coverage is usually available only for smaller to medium-sized risks, the brokers said. If insurance carriers were no longer required by federal law to offer terrorism coverage, the brokers said it was unclear how readily available the coverage would be. “Without it, a lot of carriers will probably discontinue coverage,” the bulletin quoted a broker from the Southeast.
Another broker noted that “We have not seen the reinsurance market develop that could replace the government’s backstop, so without that, there is no way for insurers to provide un-reinsured terrorism and at the same time guarantee their solvency to respond to other claims.”
Asked what types of properties and what regions of the country are considered the highest risks for acts of terrorism, the brokers gave pretty much the same responses as they have since the 9/11 terrorist attacks: major metropolitan areas; high- profile and “trophy” buildings; major landmarks; government buildings; nuclear power and petro-chemical plants; bridges; modes of public transportation; and large resort centers, stadiums or amusement and entertainment venues that draw big crowds.
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