Pricing decreases for private market terrorism cover flatten: BestReprints
Pricing decreases for private market terrorism insurance have begun to flatten after years of decline flowing the active 2017 catastrophe season, according to a report Friday from rating agency A.M. Best Co.
Some insurers and others, meanwhile, are beginning to look toward 2020 when the U.S federal terrorism backstop comes up for renewal, said the report called Insurers Adjust to Changing Terrorism Risk Landscape.
An absence of attacks and claims coupled with previous market softness had left private market terrorism coverage pricing in decline for years, Best said.
“However, the decreases appear to be flattening, given that, following a very active hurricane and wildfire season in 2017, reinsurers have not gotten the price increases they had anticipated for natural catastrophe risk,” the Best report said.
Meanwhile, the current version of the U.S. government’s backstop to the insurance market in the event of a large-scale terrorist event and insurance loss is set to expire on Dec. 31, 2020, Best said.
“The lack of permanency and the decline in protection provided to the (re)insurance industry at each (Terrorist Risk Insurance Program Reauthorization Act) renewal remains a major insurance industry concern,” Best said in its report. “As we approach 2020, this situation is becoming particularly meaningful for the large and medium-sized carriers due to their potential reliance on this financial backstop.”
One way in which the insurance industry has reacted to what Best describes as a change in threat types is to offer coverage for loss of attraction and business interruption.
“Some insurers have developed products that provide stand-alone terrorism coverage and cover damages due to denial of access and loss of attraction,” the Best report said.
Denial of access policies cover revenue loss for neighborhood businesses that cannot be accessed following an attack due to an imminent threat, inspections or investigations, Best said.
Loss of attraction could cover the loss of revenue to a business because of an attack at an attraction nearby — for example, hotels would be covered if a nearby tourist attraction was closed due to a terrorist event.
“Although these are typical extensions of business interruption cover, they provide more explicit cover for the impact of terrorism,” Best said in its report.