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Member, Beacon International Group, Ltd.
Uncertainty over the future of the federal terrorism insurance backstop appears to be causing “tightening” in the terrorism insurance market, according to a report released Thursday by the President's Working Group on Financial Markets.
The report, “The Long-Term Availability and Affordability of Insurance for Terrorism Risk,” says private-market per-risk capacity for terrorism risk coverage has increased “only moderately' since 2010. It said policyholder takeup rates have remained stable and coverage prices have been “fairly steady.”
But the market appears to be tightening in “anticipation of a potential expiration” of the federal terrorism insurance program, which will end on Dec. 31 if it is not extended. Last week, a bipartisan group of senators introduced legislation that would reauthorize the program for seven years but require insurers to bear more risk than they do under the current program.
“Challenges continue to exist regarding the ability of the private market to provide terrorism risk insurance without a federal backstop, particularly with respect to the ability of insurers to model the frequency and severity of losses that would arise from acts of terrorism,” said the report. “Also, reinsurers and the capital markets appear reluctant to provide further support to the terrorism risk market.”
In fact, the report noted that based on comments it received, without the federal program, “terrorism risk insurance, particularly for high-valuee xposures, may become a smaller, specialty market if such coverage remains available at all.”
The group issued its last terrorism insurance market report in 2011.