Percentage of companies purchasing terrorism coverage slightly up: Study

NEW YORK--The percentage of U.S. companies purchasing terrorism risk insurance rose slightly last year despite increasing cost for the coverage, according to a new report.

Fifty-nine percent of companies purchased or renewed their property terrorism insurance coverage in 2006. That's up from 58% in 2005, 49% in 2004 and 27% in 2003, according to a report by New York-based Marsh Inc.

Take-up rates for terrorism insurance coverage were slightly higher last year compared with 2005 despite rising costs for the coverage. The median terrorism insurance rate was $47 per $1 million of total insured values in 2006, up from $43 in 2005, according to "Marketwatch: Terrorism Insurance--2006 Market Conditions and Analysis."

The slight increase in the take-up rate for terrorism insurance was "interesting" because it was thought that the rate would decline due to rising premiums in the property insurance market, said Jill Dalton, managing director of Marsh's property practice in New York.

Terrorism insurance premiums, though, did not rise at the same rate as property premiums, likely because losses in the property markets were driven by catastrophic events, she said.

"I think terrorism pricing didn't go up as much because there hasn't been a loss," Ms. Dalton said.

The sustained demand in 2006 was driven by contractual requirements and the continued perception that terrorism remains a risk for companies, she said.

Companies with total insured values of $1 billion or more had the highest take-up rate for terrorism insurance, at 65%, followed by 63% for companies with total insured values between $500 million and $1 billion. Sixty percent of businesses with total insured values between $100 million and $500 million purchased terrorism insurance, while 49% of companies with values of less than $100 million bought the coverage, according to the report.

Financial institutions were the biggest purchasers of terrorism insurance, with take-up rates of 81%; followed by real estate firms and utilities, 77%; and educational and health care institutions, 76%.

Demand is being driven by specific issues in these sectors. For example, real estate firms often are contractually required to have terrorism insurance while utilities perceive themselves as being targets because of the potential disruption that could be caused by attacks on their facilities, Ms. Dalton said.

In contrast, 43% of general manufacturing and 45% of construction companies bought terrorism coverage in 2006, according to the report. Manufacturing facilities are often in areas that may not be perceived as being at risk for terrorist attacks, she said.

The New York metropolitan area had the highest take-up rate for terrorism insurance at 77%, followed by Washington at 75% and Dallas at 71%. Houston had the lowest take-up rate at 33%.

The report is available online at http://global.marsh.com/documents/MarketConditionsAnalysis2006.pdf.