The U.S. terrorism insurance market continues to be “challenged” by uncertainty over whether the federal government's terrorism insurance backstop will be extended, according to a report issued Wednesday by Guy Carpenter & Co. L.L.C.
In “Uncertain Future: Evolving Terrorism Risk,” the reinsurance brokerage said that even though there has been a “significant increase” in terrorist attacks and fatalities globally during the past five years, “evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening terrorism reinsurance market in areas with less perceived risk.”
This is due in part to the adequate capacity of the broader reinsurance market and the fact that some countries have established pools to provide terrorism insurance capacity following major terrorist events, the report said.
But the U.S. market “continues to be challenged by the uncertainty over the potential expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) on Dec. 31, 2014,” said the report.
Concern has arisen that expiration of the program or even significant changes to it could lead to the withdrawal of terrorism coverage in the United States. That could have international ramifications, as other pool structures could come under pressure to dissolve, Guy Carpenter said in the report.
“The uncertainty over TRIPRA's future was evident during the first five months of 2014 as several workers compensation renewals with sizeable employee concentrations in large U.S. cities changed carriers and in some cases moved into the residual market,” said the report.
Shortfalls in major markets if program not renewed
If the program is not renewed or is changed significantly, Guy Carpenter predicts that there would be additional capacity shortfalls in large metropolitan areas that are in the most need of coverage. Increased pricing would be certain to follow, according to the report.
“Some form of federal backstop is therefore needed if the private reinsurance market is to continue to provide capacity to higher risk areas,” said the report. “Given a number of insurance carriers continue to rely on TRIPRA to provide the terrorism insurance limits they currently offer,” Guy Carpenter and its parent, Marsh & McLennan Cos. Inc., “strongly support the reauthorization and modernization of the act.”
A bipartisan measure that would reauthorize the program for seven years has been approved by the Senate Banking, Housing and Urban Affairs Committee. A measure that would extend the program for five years will be considered by the House Financial Services Committee on Thursday.
The report can be read here.