The property insurance take-up rate for terrorism coverage continues to rise, with 61 percent of companies surveyed by Marsh–a record high–buying the additional protection against catastrophic risk.
In its “Terrorism Risk Insurance 2010″ market report, Marsh said the number of purchasers has continued to rise since 2003, when only 27 percent of those surveyed bought property terrorism coverage. In 2008, the number had dropped from a high of 59 percent to 57 percent.
In 2009, companies in the utility, real estate, health care, transportation, financial institution and media industries led the way in purchasing property terrorism insurance, with take-up rates topping 70 percent.
Manufacturing, food and beverage, and energy were on the low end at less than 50 percent. Energy had the lowest take-up rate at 40 percent.
Price may be playing a part in spurring more buyers to purchase the coverage. Indeed, the median premium rate for terrorism plummeted by more than one-third–from $37 per million of total insured value in 2008, to $25 per million last year.
However, prices are not uniform, with construction, hospitality, utility and real estate seeing the highest median premium rates last year, at $50 per million of total insured valued.
In terms of pricing as a percentage of overall property premiums, financial institutions and transportation paid the largest share at 24 percent and 17 percent, respectively, Marsh noted in its report.
On the other hand, hospitality firms witnessed the largest decrease, from 13 percent in 2008 to 4 percent last year.
Capacity in the stand-alone terrorism market is estimated to be $3.76 billion, offering coverage for both Terrorism Risk Insurance Act-certified and noncertified risks.
Insurers remain cautious about accumulating too much terrorism risk, according to Marsh. They continue to avoid gathering too much exposure in “high-profile urban” areas and are concerned with “the residual risk of terror events,” the brokerage observed.
Reinsurers offer terrorism risk on a stand-alone basis, and an estimated $700 million of per-occurrence is available, the report noted. “For certain programs, notably workers' compensation programs where the terrorism exposure is limited to a single state, it is feasible to secure more than $1 billion of capacity,” Marsh said.
Marsh said captives are viable vehicles for companies to cover terrorism exposures, especially as a way to control the cost of the program. “There are several key areas of opportunity to enhance TRIA coverage via use of a captive,” the report suggested. “Because property policies typically exclude these coverages or because costs of insuring such risks are generally prohibitive, using a captive to provide the coverages can be particularly beneficial.”
In its report, Marsh said the industry still needs a number of years to develop the surplus needed to cover another Sept. 11 event, adding that a joint public-private sector program will be needed long-term.
The brokerage warned that without that partnership, an economic downturn is a real possibility.
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