Global terrorist activity is an alarming feature of modern society. Our media is awash with news of political skirmishes and terror attacks – just last week in Barcelona and Finland as the most recent examples.
Such social instability has nurtured a highly competitive market for terrorism risk insurance in the US and worldwide. It’s a market that has grown quickly in the US, considering its limited capacity in the wake of the World Trade Center attack in 2001.
Celebrate excellence in insurance. Nominate a worthy colleague for the Insurance Business Awards!
In 2002, the Terrorism Risk Insurance Act (TRIA) was signed into federal law by President George W. Bush. It provided a federal “backstop” for insurance claims related to acts of terrorism and encouraged growth in the market by enabling insurers (and the industry) to manage their terrorism risk exposures.
“The introduction of the TRIA backstop encouraged property insurers to return to accepting terrorism risks and this created substantial new capacity with a connected reduction in pricing,” said Quentin Prebble, Global Head of Terrorism at
Ironshore. “The ‘stand alone’ market continues to exist as it provides greater assurance to buyers by providing coverage without the requirement of Government certification of the loss/incident in question as an Act of Terrorism.”
The uptake of terrorism insurance has increased internationally as the product has become more affordable. Coverage conditions have broadened to include things like active shooter, threat, non-damage business interruption, limited cyber and denial of access cover. There has also been an increased uptake of political violence coverage as opposed to the more limited conditions of a ‘stand alone’ terrorism policy.
“The main area where there continues to be a coverage shortfall is in the area of nuclear, chemical and biological coverage,” Prebble told Insurance Business. “This is largely the result of there being a very limited reinsurance market for these exposures. The management of the accumulation of risk in urban areas from these exposures in particular remains problematic for insurers.”
There are other difficulties for insurers and brokers in the terrorism insurance space. Reduced pricing and broader coverage, coupled with an increased frequency of loss/incidents have decreased margins significantly, according to Prebble. For brokers, the reductions in pricing have made terrorism risk cover easier to sell but retention of business has become more challenging.
The industry also faces the issue of changing terrorism trends. In the past few years, the media has reported on multiple vehicle attacks involving civilians, a trend that is likely to continue according to Prebble.
“In addition to the increase in the incidence vehicle attacks there is the realistic possibility that drones will feature in attacks in the future. Effective geo-fencing at airports and where there are large gatherings of spectators in particular will be increasingly important in the future,” he said.
Related stories:
Charlottesville terror raises new insurance need
How insurers evolved to deal with the terror threat
