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Expect higher insurance premiums if TRIA not renewed: Fitch

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Expect higher insurance premiums if TRIA not renewed: Fitch

If the Terrorism Risk Insurance Act, which is now up for renewal before Congress, is not renewed, it could induce commercial insurers to retreat from larger metropolitan areas, thereby reducing the availability of coverage and raising premium rates, Fitch Ratings Inc. said Monday.

In the short term, this would leave individual insurers with commercial property and workers compensation exposures from a potential event above prior risk tolerance levels, said Fitch in a statement.

TRIA is set to expire Dec. 31, 2014, but legislation that would extend protection through 2019 is in the U.S. House of Representatives, Fitch said.

“We believe this is likely the opening act of a tough legislative battle that will directly influence the future cost and availability of insurance coverage, particularly in large urban areas. It would also have broader economic implications outside of the insurance industry,” said Fitch.

According to an analysis by Marsh Inc. released last week, 62% of firms that the insurance brokerage surveyed purchased property terrorism coverage in 2012, which was about the same percentage that had purchased the coverage in 2010 and 2011.

“If Congress fails to extend TRIA legislation, the impact would be felt in industries such as banking, commercial real estate and construction,” said Fitch. “A lack of available insurance coverage can create secondary economic repercussions that affect property values, construction activity and employment.”

Fitch also said: “Insurers' sophistication regarding terrorism risk has evolved significantly since 2001, with a heightened focus on managing risk aggregations in larger metropolitan areas. Still, the industry remains in a challenging position in terms of modeling and underwriting terrorism-related risk.”

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