Regarding prices charged for terrorism coverage, the survey found post-TRIA premiums, especially for high-risk locations, are considerably lower than the “dislocation in prices” that occurred after 9/11. However, TRIA has not yet encouraged insurers to broadly offer terrorism coverage at prices most insurance buyers view as reasonable, Moodys said.

The survey also noted that reinsurance coverage for terrorism is being quoted, but often at “very high rates” approaching 33 percent of the coverage limits. TRIA does not protect reinsurers, the survey pointed out.

On a positive note, the survey found that, for small and middle market accounts, many of the insurers are offering terrorism coverage for free or for a relatively modest 1 to 5 percent of the non-terror premium. Some insurers, the survey discovered, are forgoing premiums not out of largesse, but because their systems cannot cope with the administrative burdens involved in charging for the coverage.

“There are small and regional insurers that did not want the expense of sending the necessary notices and issuing the paperwork connected to pricing,” said Mr. Bartie.

Moody's anticipates that terrorism risk will eventually be underwritten using all of the tools now used to underwrite natural catastrophe risks, including individual risk selection and pricing, coverage restrictions, aggregate exposure management, and modeling.

Regarding insurers' failure to so far embrace modeling as a way of pricing terrorism coverage, Moody's pointed to insurer skepticism of the models' data quality and their ability “to ascribe probabilities to future events that only 18 months ago were unimaginable.”

Also, the survey states that terrorist events differ from other types of catastrophes in that natural catastrophes “do not consciously seek to maximize financial damage and human harm, in contrast to the objectives of terrorists.”

As respects workers' compensation, the survey revealed that insurers have for the most part adopted pricing guidance issued by the Boca Raton, Fla.-based National Council on Compensation Insurance and state workers' comp bureaus. The survey noted that, because workers' comp insureds cannot decline terror coverage, insurers can win or lose accounts based on how they price the terrorism component.

Reproduced from National Underwriter Edition, June 9, 2003. Copyright 2003 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.