Saying no: a Best's Review survey reveals insurers and agents are declining terrorism coverage in urban, high-risk areas.

Insurers are apprehensive about writing terrorism insurance in perceived target zones such as New York; Washington, D.C.; Chicago and Los Angeles as a result of the terrorist attacks of Sept. 11, 2001, according to a recent Best's Review survey.

About 22% of people responding to a query on how the Sept. 11 attacks have directly affected their business said they have declined accounts or restricted the availability of terrorism insurance in urban areas or excluded terrorism altogether. Others expressed new concerns with concentration of risk, low client interest in terrorism insurance, and the added red tape associated with writing policies that adhere to the Terrorism Risk Insurance Act and its extension.

"We have excluded 'acts of terrorism' as being covered in our policies," a reinsurer stated. "Also, back in 2002 we implemented risk concentration data collection policies." And a primary casualty underwriter with a heavy workers' comp book said because of concentration issues, "I've had to decline some accounts, primarily high-tech and hospitals."

Overcoming Obstacles

Respondents said the greatest barriers to private insurers' offering terrorism coverage are the "inadequate historical data;" "buyers don't want it;" "lack of creative thinking;" and "the extremely high deductibles under TRIA." An agency, brokerage or advisory organization said terrorism, "like flood insurance" promotes "adverse selection against the companies."

"It's categorically and definitively a bad risk, which makes it all the more amazing that it's not excluded or that the premiums are not astronomical," said another agency, brokerage or advisory organization representative.

"The cost needs to be spread over all of the country, not just placed upon the high-risk target areas," an insurance company offered. "We are all in this together."

A majority of survey respondents, 82.2%, said the Terrorism Risk Insurance Act, which was extended last year through December 2007, should be extended a second time when it sunsets in 14 months. Changes they'd like to see include making TRIA a permanent backstop, making coverage on a stand-alone basis and creating a voluntary pool.

"TRIA should be extended permanently with a provision for sunset when the federal government makes the determination that the threat no longer exists;' wrote an insurance company.

"Credits should be given for policyholder mitigation strategies. You can't stop a plane in the sky, but you can install ground-level explosion protection," said someone from an insurance-related company or organization.

What is the most significant change that the terrorist attacks of Sept. 11, 2001, have brought about in the insurance industry?

"The need for terrorism cover; in the past this was not thought to be that important. Any lender will want terrorism cover on any asset that is financed by that lender."

--Other insurance-related company or organization

"The excessive amount of systems work on very short notice to comply with terrorism insurance coverage and notification requirements."

--Insurance company

How have the terrorist attacks of Sept. 11, 2001, directly affected your business? Have they affected your ability to offer any coverages or have you lost any sales?

"We have increased the importance we place on the ability to recover from a catastrophe. The recovery system was in place before, but there is heightened emphasis now."

--Insurance company

"Clients are more aware of the need to insure to value and for broader coverage. Sales volume in the property area has thereby increased."

--Agency, brokerage or adviser organization

Do you or the carriers you represent currently offer terrorism insurance? If not, why not?

"We were impacted financially by Sept. 11 and upper management believes we cannot expose ourselves to this risk again."

--Reinsurance company

"Most of the reinsurers offering security to local insurance companies are excluding the terrorism risk. On the other hand, although this cover can be bought by local insurers on a stand-alone cover, clients in Malta are not prepared to pay high premium for this cover, as Malta is considered to be a low terrorism risk."

--Insurance company

In general, what's the greatest barrier to private insurers' offering terrorism insurance?

"it is too paper-intensive the way it is set up currently."

--Insurance company

"If you could offer it up to your self-imposed limit and stop, companies would be financially more able to share the burden."

--Other insurance-related company or organization

If TRIA is extended again, what changes should be made in it?

"Index the coverage in the federal program to a specified level of surplus depletion for each insurance group. That is, insolvency should not be the trigger, but a major hit to a company's net worth should be."

--Regulatory actuary

"Premiums collected should be accounted for and any charges made toward the fund should be made public so we can see who is benefiting from the funds."

--Agency, brokerage or adviser organization

"Drastically reduce deductible and retention levels so that reinsurance retentions are nominal and terrorism is treated as a social condition."

--Insurance company

What is the most significant change that the
terrorist attacks of Sept. 11, 2001, have brought
about in the insurance industry?

49.2%    Insurers' heightened concern
         about concentration of risk
44.8%    The perception of the need for a
         national terrorism reinsurance
         program, such as the Terrorism
         Risk Insurance Act
10.9%    The evolution of terrorism risk modeling
10.4%    Insurers' new emphasis on contract certainty
 7.1%    Other

Do you or the carriers you represent currently
offer terrorism insurance?

83.5%    Yes
17.6%    No

In general, what's the greatest barrier to private
insurers' offering terrorism insurance?

  56%    Unpredictability of risk
26.3%    Limited availability of reinsurance capacity
25.7%    Adequate pricing is too unattractive to
         potential buyers
10.9%    Other

Should the Terrorism Risk Insurance Act be
extended a second time after the first
Extension Act expires at the end of 2007?

82.2%    Yes
17.8%    No

If the Act is extended again, what changes
should be made in it?

50.3%    Add coverage for acts of
         domestic terrorism
15.4%    Add group life insurance coverage
27.4%    Require insurers to offer coverage for nuclear,
         chemical, biological and radiological attacks
14.3%    None. It should be exactly the same
29.1%    Retention levels should ensure private sector
         capacity is exhausted before public moneys
         are used
14.3%    0ther

If the Act is not extended again, what is the
most viable alternative?

40.2%    A voluntary common pool, based on the
         United Kingdom's Pool Re, that would
         accumulate funds over time to cover terror
         losses by participating insurers
39.1%    A voluntary common pool that would
         cover all property/casualty lines and all
         large catastrophes
12.6%    Changes in
         taxation of insurance
   8%    Increased ease of doing on-shore securitization
         of terror risks
13.8%    0ther

What is your work?

36.4%    Agency, brokerage or adviser organization
46.2%    Insurance company
 7.1%    Other insurance-related company or organization
  12%    Other

Note: Table made in bar graph.