Posted on 31 Jan 2011
The Terrorism Risk Insurance Program, a temporary government intervention in the private insurance market for terrorism risk insurance coverage, is now entering its eighth year, a year after the U.S. was attacked on September 11, 2001. The President’s Working Group on Financial Markets (PWG) has performed an on-going analysis of market conditions for terrorism risk insurance, and one of its key findings among others is that availability and affordability of terrorism risk insurance provided by the private sector has improved since 2006, with insurers having built capital and increased marketplace capacity. Other findings include:
• Overall, marketplace terrorism risk insurance capacity has increased, and significantly in some forms. Nevertheless, capacity is constrained in some markets (e.g., high-risk geographic locations and properties), and some commercial insurance policyholders in high-risk urban areas have difficulty obtaining coverage with sufficient limits.
• Improvements in the terrorism risk insurance market may have occurred due to improvements in modeling and managing accumulation and concentration of aggregate loss exposure; new market entrants and increased competition; and heightened capital positions of the property and casualty insurance and reinsurance industries. The industry better understands aggregate risk and the increased capacity and competition have resulted in decreases in price generally.
• Take-up rates among commercial insurance policyholders reached approximately 60 percent in 2006, but have remained roughly flat since then. Among those commercial insurance policyholders taking up terrorism risk insurance, there is some indication
that more coverage, as measured by policy limits, may be being purchased.
• Market participants (policyholders, insurers, and reinsurers) remain uncertain about the ability of models to predict the frequency and severity of terrorist attacks. Such views influence policyholder perception of risk and purchase decisions, as well as insurer and reinsurer capacity allocations.