Insurance News

Many Governments Back Terrorism Insurance

Posted on: June 25, 2009

Government supports for terrorism risk insurance are growing globally, although some countries provide no backing, according to a study by reinsurance brokerage Guy Carpenter Inc.

The report examined the state of terrorism insurance in 34 countries and six continents.

Summarizing the report, Chris Klein, global head of business intelligence at Guy Carpenter, said the “global picture for terror insurance programs remains mixed.”

He said that since the attacks of Sept. 11, 2001, “we have seen a marked increase in government involvement in the global terror insurance market, with a number of countries developing and refining comprehensive programs for terror coverage and terror pools. As the threat of terrorism evolves, the marketplace continues to find new ways to meet it.”

In the United States terrorism coverage is being offered through the federal government. It is also being addressed at the state level, with 14 states allowing terrorism exclusions to be added to the “1943 New York Standard Fire Policy” (SFP) since Sept. 11, 2001, the report said.

U.S. support is also continuing for aviation insurance, with the government extending the duration of its cover while most other government-sponsored aviation insurance schemes adopted in the wake of Sept. 11, 2001 have been withdrawn.

These have been replaced by commercial cover, the report said.

In the United States, because “market capacity is increasing and prices are dropping considerably, aviation coverage is available and abundant,” Guy Carpenter found.

The Terrorism Risk Insurance Act of 2002 was extended in 2007 for another seven years with the revised bill requiring insurers to offer coverage to a large majority of commercial policyholders. In return, carriers receive government reinsurance protection above a deductible, calculated at 20 percent of direct earned premium, said the report.

Last month in a document on budget cutbacks totaling $17 billion, the Obama administration proposed scaling back the TRIA program. But, Guy Carpenter said, “industry observers viewed the proposal as more of a political statement than a formal statement of policy. Having spent so much time passing the renewal of TRIA in 2007, Congress is not believed to be willing to revisit the legislation for some years.”

The issue of terrorism cover has been addressed at the state level as well, it was noted. Prior to the events of Sept. 11, 2001, 31 jurisdictions had laws that required that property policies be based on the SFP.

Guy Carpenter said the SFP contains few exclusions and does not exclude terror as a cause of loss by fire. Further, the hazard of “fire following” an event is covered even if the peril that causes the fire is not covered in the policy. SFP laws, said Guy Carpenter, have prevented insurers from denying cover for fire caused by terror events, even in cases where insurers had terror exclusions.

The firm cited a report from the National Association of Mutual Insurance Companies that 14 states have allowed terrorism exclusions to be added to the SFP since Sept. 11, 2001: Arizona, Connecticut, Idaho, Louisiana, Michigan, Minnesota, Nebraska, New Hampshire, North Dakota, New Jersey, Oklahoma, Pennsylvania, Rhode Island and Virginia.

The proposed Obama administration cuts would affect the subsidies the program would receive in the event of a terrorist act over the next four fiscal years of the program, ending in 2014.

In Europe, the study found, a number of countries have been active in implementing terror insurance schemes, including Austria, Belgium, France, Germany, the Netherlands and the United Kingdom.

“Though each pool features a different structure and level of government involvement, these nations have been among the most active in addressing terror coverage,” the report said.

But other European nations, including Denmark, Italy, Norway, Portugal and Sweden, “have seen little to no government involvement in the development of terror insurance programs or pools,” Guy Carpenter wrote.

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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