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Failure to extend federal terrorism insurance backstop would 'severely curtail' coverage: Report

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Failure to extend federal terrorism insurance backstop would 'severely curtail' coverage: Report

Failure to extend the federal government's terrorism insurance backstop probably would cause insurers to “severely curtail” underwriting risks in areas at the greatest risk of terrorist attacks and thus the greatest need for coverage, according to a report released Wednesday by Guy Carpenter & Co. L.L.C.

The report, “Tensions Building: The Changing Nature of Terrorism Risk and Coverage,” notes that there are “limited expectations” of Congress addressing terrorism insurance before the program expires at the end of 2014. If the program lapses, terrorism insurance — primarily property fire insurance — would be greatly reduced in central business districts and other high-risk areas.

Regarding other lines of coverage such as workers compensation that are mandated with or without a backstop, “we would expect insurers to severely curtail” their writings, according to Guy Carpenter, a unit of Marsh & McLennan Cos. Inc.

The report says that terms would include limitations that “facilitate market aggregations,” specifically contingent coverage for events where service providers such as power stations, have been the target of an attack. Pricing would “dramatically increase” in many metropolitan areas and for “numerous occupancies,” said Guy Carpenter.

“Many policyholders would be left to self-insure the entire risk or portions of the risk, meaning any future terrorist attacks could have a negative impact on U.S. economic activity,” said the report, adding that such a situation could reduce the United States' ability to compete in the global marketplace.

The full report is available here.

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