“So what were seeing more often than not is the self-assumption of risk for terrorism in the U.S. My company is no exception,” he said, referring to the fact that USAA, the San Antonio, Texas-based insurer where he serves as assistant vice president of enterprise risk management, decided not to purchase the coverage.

“We looked very closely at it, and the only place that were engaging in purchasing terrorism standalone coverage is where were absolutely forced to have it by lenders because of mortgage requirements,” Mr. Mandel added during a speech here last week at the annual conference of the London-based Association of Insurance and Risk Managers.

Mr. Mandel said that a lot of standalone terrorism business has been quoted in the United States, but very little of it has been purchased. “Ive heard estimates that 15-to-20 percent of the quotes have actually resulted in the purchase. People seem to be waiting for a federal legislative solution,” he said, speaking just before the U.S. Senate passed a bill to establish a federal terrorism reinsurance backup. That bill must now be reconciled with a very different version passed by the House of Representatives in a House-Senate Conference Committee.

“Structuring the program is very difficult because most people need a lot more limits than they can buy, or would want to buy,” he said.

Indeed, he noted that it is tough to assemble a program with much more than $200 million in the United States. The aggregate limits provide only coverage for declared properties, and there are complications in the forms that include definition, the way the physical loss or damage is treated, as well as the exclusions and policy limitations, he noted.

The policies only cover explosive events and exclude chemical and biological attacks, he said, explaining that these limitations also defined his reaction to the coverage and his decision not to purchase it.

Mr. Mandel said he was aware of 17 different forms, some of which include very broad definitions of terrorism. For example, under some of the available forms, a U.S. employee killing co-workers–or “going postal,” as they term it in America–would be defined as a terrorist event, he said. “I just thought that was unacceptable, again leading to my decision not to purchase it for the corporation,” he said.

“At the end of the day, I believe that a lot of that is going to be subject to litigation for those that have purchased those covers, if and when terrorism events do occur,” Mr. Mandel continued.

He said $5 million-to-$200 million in aggregate limits are available, while deductibles range from $50,000-to-$50 million. Rating factors include declared values of assets, geographic locations, type of locations and the occupants of the buildings, he said.

“When I looked at the specific quotes I got, there was a little discount at the bottom for risk retention. You could retain half-a-million dollars, $1 million or $5 million; there wasnt a lot of difference in the premium–the assumption being that if a loss occurred, it was going to be a total loss,” he said.

“The good news was that Lloyds has the best price and the best form,” although he said it would be necessary to use every syndicate that writes this coverage to get adequate insurance.

Alternative risk-transfer vehicles are emerging to cover terrorism, such as the risk retention group formed for the airline industry. “On the real estate industry side, there is an association captive that is emerging that will probably provide terrorism coverage as well,” he said.

Another issue is that there is no terrorism coverage for general liability on a standalone basis, he said, noting that he has been told by markets he deals with that terrorism coverage will return if Congress provides a federal backstop.

“Im not quite sure in what form, and I dont ever expect terrorism to be handled in property forms the way it was at one time, but I will try to hold the industry accountable for bringing back coverage should the government do what weve been encouraging them to do for some time,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 24, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.