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Proposed Budget Cuts Create Uncertainty in Terrorism Insurance Market

Source: Marsh

Posted on 07 Jul 2010

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In an attempt to reduce federal spending, the Obama Administration's proposed budget would cut federal support of the Terrorism Risk Insurance Act (TRIA) and eliminate coverage for acts of domestic terrorism. The news has instilled uncertainty in the insurance market, particularly for brokers and consumers of terrorism protection as they consider the appropriate level of coverage to purchase.

The proposed budget, which was released in February, remains limited in terms of specifics on how changing TRIA would decrease the federal government spending.

"Immediately after the release of the budget, Marsh's experts met with decision makers, who assured them there is no appetite in Congress to make any changes to TRIA," noted Tarique Nageer, Marsh’s Property Specialized Risk Group Practice.  "So, it seems unlikely this provision in Obama's proposed budget will gain traction."

"However, companies should keep abreast of developments and how potential changes may affect their terrorism coverage," Nageer cautioned.

"An alternative to TRIA, stand-alone terrorism insurance, remains a variable market solution," explained Ben Tucker, Marsh's Property Specialized Risk Group Practice Leader. "Dozens of insurers offer a theoretical maximum capacity of approximately $3.75 billion. Rates are competitive and, at times, more competitive than pricing of embedded terrorism in property programs. Although capacity is relatively stable, it can vary, primarily due to location of risk, insurer’s accumulation of exposure, concentration of exposure, and market capacity."

U.S. companies have two main types of terrorism insurance available to them: TRIA insurance and stand-alone terrorism insurance. TRIA was created after the September 11, 2001, terrorist attacks triggered a severe market shortage for terrorism insurance to provide a federal financial backstop in the event of a certified attack