Backlash expected from Senate's inaction on terrorism insurance backstop
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The failure of the Senate to vote on legislation extending the federal terrorism insurance program, will likely reverberate quickly through the insurance industry and the entire U.S economy, according to observers.
“There will be immediate adverse effect on the U.S economy,” said Robert Hartwig, president of the New York-based Insurance Information Institute.
The Senate's inaction will cause tumult in the insurance marketplace as insurers scramble to adjust policies and policyholders rush to secure coverage.
“This is very disruptive for everybody, but the market is working hard to resolve it,” said David Eliot, who specializes in the stand-alone terrorism market at London-based broker Miller Insurance Services L.L.P.
While existing and new players brought new capacity to the market during 2014, competition for coverage in high-risk areas will become more intense, say industry sources.
Most experts agree there is roughly $3 billion of stand-alone capacity available in the market, but this drops off to $ 1 billion or far less in so-called Tier 1 cities, which include New York, Chicago and San Francisco.
Furthermore, insurers will no longer be obligated to offer terrorism as part of property cover, leading to reduced availability and potentially lower terrorism insurance penetration.
“It's going to reduce capacity and availability and certainly will drive up costs,” said Howard Mills, chief adviser at the insurance industry group at Deloitte Services L.L.P. in New York.
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