Despite an ever-changing terrorism risk insurance market, businesses from every industry sector continue to purchase coverage—more than 60 percent of organizations surveyed by Marsh bought coverage in 2009.
3. The Marsh Report:
Terrorism Risk Insurance 2010
Publisher Ben Tucker Marsh’s Property Practice
Subject Experts Duncan Ellis Marsh’s Property Practice
Will Eustace Marsh’s Casualty Practice
Erick Gustafson MMC Government Relations
John Hughes Marsh's Property Practice
Dusan Jovanovic Marsh’s Global Benchmarking Team
Paul Knutson Guy Carpenter
Emil Metropoulos Guy Carpenter
Tarique Nageer Marsh’s Property Practice
Sandra Owusu-Fianko Marsh's Property Practice
Chris Varin Marsh's Captive Management Practice
Managing Editor Kate Byrnes Marsh’s U.S. Risk Practices
Editor Tom Walsh Marsh’s National Sales & Marketing Team
Designer Ian Law Marsh's Interactive Assets & Strategy
4. The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
5. Table of Contents
The Marsh Report:
Terrorism Risk Insurance 2010
1. Introduction ............................................................ 1
.
2. Executive Summary ............................................... 3
.
3. n Overview of the Terrorism Risk
A
Insurance Extension Act (TRIA) ............................ 6
4. indings and Analysis: Property Terrorism
F
Purchasing in 2009 ............................................... 10
.
5. The Standalone Terrorism Marketplace ............ 17
.
6. orkers' Compensation and
W
Liability Coverages ................................................ 21
7. RIA, U.S. Terrorism, and International Terrorism:
T
Effect on the Insurance
and Reinsurance Markets .................................... 24
8. aptives: Opportunities and Considerations .... 28
C .
9. nternational Terrorism and Political Violence
I
Insurance ............................................................... 31
10. Conclusion ............................................................. 33
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010
6. The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
7. 1 Introduction
Despite an ever-changing terrorism risk insurance Since the original legislation in 2002, the standalone
market, businesses from every industry sector terrorism market has grown and evolved and now
continue to purchase coverage—more than 60 percent offers a number of viable program solutions for
of organizations surveyed by Marsh bought coverage companies in the United States and abroad to
in 2009. mitigate their terrorism risks.
Terrorism insurance and associated risk On February 1, 2010, the Obama Administration
management strategies are dynamic and complex released its proposed 2011 budget, which would reduce
issues, with many interdependent factors federal support for TRIPRA beginning in 2011 and
contributing to managing the risk. Foreign relations, again in 2013. This was originally presented by the
the effectiveness of homeland defense, and the U.S. Office of Management and Budget in its report
ambiguous nature of the risk make terrorism losses "Terminations, Reductions, and Savings, Budget of the
extremely challenging to predict and quantify. It is U.S. Government, Fiscal Year 2010."
difficult for insurers to effectively price and reserve
capacity for their potential exposure to catastrophic The 2011 budget generally proposes reduced federal
terrorism losses. intervention in TRIPRA, and specifically identifies:
U.S. insurers are backed by the commitment of the increasing the deductible to be paid by insurers;
United States federal government to provide
increasing the insurer co-participation;
reinsurance relief to help them manage the ongoing
risk of terrorism. In 2007, President Bush signed the increasing the event trigger;
Terrorism Risk Insurance Program Reauthorization removing coverage for acts of domestic
Act of 2007 (TRIPRA)1, extending the program through terrorism; and
December 31, 2014. The original legislation—the
Terrorism Risk Insurance Act of 2002 (TRIA)—was a reducing the recoupment percentage from
direct response to the attacks of September 11, 2001, 133 percent to 100 percent.
and part of a concerted effort to keep the American Although this proposal simply reasserts the position
economy strong. detailed in the first report of efforts by the Obama
Administration to reduce government spending, it
Like the original legislation, the two extensions were holds few specifics on how changing TRIPRA would do
intended as short-term solutions. Congress passed so. Marsh’s terrorism experts have had discussions with
TRIPRA in part because the insurance industry had not policymakers who have indicated there is very little
amassed enough capital to insure catastrophic appetite for these changes to be enacted by Congress.
terrorism losses without a federal backstop.
1. his report refers to the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005, and the
T
Terrorism Risk Insurance Program Reauthorization Act as “TRIA,” "TRIPRA, or "the Act." In instances where it is necessary
to distinguish between the three, the accompanying text will do so.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 1
8. Marsh’s Property Specialized Risk Group will keep our
clients informed of further developments and their
potential impact on terrorism insurance programs.
This publication, Marsh’s annual terrorism risk report,
is designed to help companies address terrorism risk
issues, despite the uncertainties. It is part of Marsh’s
ongoing effort to inform clients of notable
developments in the terrorism insurance
marketplace—including cost, demand, and gaps in
coverage. The report looks at:
key issues under TRIA;
property terrorism insurance purchasing in 2009;
the standalone property terrorism insurance market;
terrorism issues in workers' compensation and
liability insurance;
the effect of TRIA and international terrorism on the
insurance and reinsurance markets;
insurance for terrorism exposures placed with
captives; and
political violence, international terrorism insurance,
and global terrorism pools/schemes.
Through benchmarking and by staying aware of
important developments, risk managers and other key
executives can help their companies prepare strategies
to manage the shifting realities of terrorism risk. Marsh
remains committed to helping our clients develop
robust, comprehensive strategies to manage this risk.
2 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
9. 2 Executive Summary
This report provides a snapshot of the major issues Construction, hospitality, utility, and real estate
and trends surrounding terrorism insurance in 2010. companies experienced the highest median
Key issues and findings include: premium rates for terrorism insurance in 2009,
exceeding $50 per million of TIV.
An Overview of the Terrorism Risk Insurance Act
When looking at terrorism insurance pricing as a
(TRIA)
percentage of overall property premiums,
financial institutions and transportation
The Terrorism Risk Insurance Program
companies paid the largest share, allocating 24
Reauthorization Act (TRIPRA) was signed into
percent and 17 percent of their total property
law in December 2007, extending the TRIA federal
programs, respectively. Hospitality firms saw
backstop program through December 31, 2014.
significant decreases in the percentage of property
The definition of an "act of terrorism" has been
premium paid for terrorism, down from 13 percent
revised to include acts of domestic terrorism, which in 2008 to 4 percent in 2009.
were excluded in previous versions of TRIA.
The issue of noncertified acts of terrorism remains
The Standalone Insurance Market
an important consideration. Although coverage
Capacity in the standalone terrorism insurance
through TRIPRA removes any exclusion to the
market has grown considerably over the years;
extent the act of terrorism is certified, some
insurers now offer a theoretical maximum of $3.76
property insurers add exclusionary language
billion in capacity.
related to noncertified terrorism coverage.
The standalone property terrorism insurance
The Standard Fire Policy (SFP)—mandated by
market offers coverage for both TRIA-certified and
statutes in 29 states—may, in some circumstances,
noncertified risks and enables companies to tailor
provide coverage from losses if they arise from a
capacity to their coverage needs.
fire caused by a terrorist attack.
Approximately $750 million to $2 billion per risk in
Property Terrorism Insurance Purchasing in 2009 standalone capacity is available to companies that
do not have sizeable exposures in locations where
Sixty-one percent of companies purchased
insurers have aggregation problems. Capacity
property terrorism insurance in 2009. excess of $2 billion is available but is more
Utility, real estate, health care, transportation,
expensive.
financial institutions, and media companies For locations where markets have aggregation
purchased property terrorism insurance at higher issues the estimated market capacity is
rates than other industry segments in 2009, with approximately $1 billion; additional capacity can
take-up rates exceeding 70 percent in these be accessed at significantly higher rates.
sectors.
The median premium rate for terrorism insurance
was down from $37 per million (0.0037 percent) in
2008 to $25 per million (0.0025 percent) in 2009.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 3
10. Workers' Compensation and Liability Most reinsurers have identified a limited portion of
Coverages their risk capital to make available to cover
terrorism exposures and typically prefer to
Insurers and qualified self-insured employers
manage terror risk by offering terrorism coverage
cannot exclude coverage for acts of terrorism from in a standalone contract rather than offering
workers’ compensation policies. coverage within a normal “all-risk” catastrophe
treaty, especially for insurers writing a national
Because workers’ compensation provides lifetime
portfolio.
medical care for on-the-job injuries, some
computer models project that the “worst-case” cost An estimated $700 million of per-occurrence
of a terrorism incident could exceed $90 billion. In coverage is available. For certain programs,
contrast, some experts put the total workers’ notably workers’ compensation programs where
compensation capacity for the entire insurance the terrorism exposure is limited to a single state,
marketplace at $30 billion. it is feasible to secure more than $1 billion of
capacity.
The National Council on Compensation Insurance
(NCCI) approved the “Domestic Terrorism, Compared to natural perils such as hurricane or
Earthquakes, and Catastrophic Industrial Accidents earthquake, terrorism modeling is still young and
Premium Endorsement (DTEC)” for workers’ untested. Quantifying the economic and human
compensation, which took effect January 1, 2005. losses from an act of terrorism continues to pose
It provides funding for some catastrophic losses, major challenges for insurers and reinsurers.
including acts of terrorism specifically excluded by
TRIA, but not for TRIA-certified acts of terrorism. Captives: Opportunities and Considerations
In 2009, the percentage of clients that purchased
Captive insurers that issue direct policies and
TRIA general liability (GL) coverage appears to have
otherwise meet the definition of a “qualified
dipped to just above 50 percent. The actual rate—
insurer” must make available coverage for insured
charged as a percentage of premium for the overall
losses resulting from an act of terrorism as defined
coverage—held steady at about 1 percent.
under TRIA.
TRIA, U.S. Terrorism, and International Using a captive to insure an organization’s
Terrorism: Effect on the Insurance and exposures against acts of terrorism can be a viable,
Reinsurance Markets cost-efficient alternative to traditional property
programs including terrorism.
Commercial insurers continue to avoid
There are several key areas of opportunity to
accumulating high-profile urban exposures due to
enhance TRIA coverage via use of a captive. Because
the residual risk for terror events retained by
property policies typically exclude these coverages
insurers below the triggers and retentions levels set
or because costs of insuring such risks are generally
by TRIPRA, coupled with the relatively high cost of
prohibitive, using a captive to provide the coverages
reinsurance in key exposure zones.
can be particularly beneficial.
The Act’s design results in a number of gaps in
reinsurance protection for insurers, including International Terrorism and Political Violence
personal lines insurance; the deductible, co-pay Insurance
share, and event trigger for TRIA-certified events;
and nuclear, chemical, biological, and The standalone terrorism insurance market can
radiological (NCBR), depending on primary policy offer coverage for assets in countries where the
coverage (many traditional property policies insured’s risks are located (subject to certain
exclude the nuclear and radiation risks). country limitations), “high-risk” countries, and/or
countries where terrorism insurance is required by
the lender or mortgagee.
4 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
11. In situations where property insurance is extended
to include coverage in accordance with the local
pool, any standalone terrorism policy will be on a
difference in conditions (DIC) or difference in
conditions and difference in limits (DIC/DIL) basis.
Political violence policies are designed to respond
to a broader class of perils in developing countries
than only terrorism.
Standalone political violence program limits of
between US$100 million and US$500 million are
commonplace. Within a terrorism insurance
program, political violence sublimits ranging
between US$50 million and US$200 million are
becoming more common.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 5
12. 3
An Overview of the Terrorism Risk Insurance
Act (TRIA)
Term January 1, 2008—December 31, 2014 January 1, 2006— November 26, 2002—
December 31, 2007 December 31, 2005
Official Legislative Terrorism Risk Insurance Program Reauthorization Terrorism Risk Insurance Terrorism Risk Insurance Act of
Name Act of 2007 (TRIPRA). Extension Act of 2005 (TRIA). 2002 (TRIA).
Coverage The extension eliminates the distinction between Acts committed by individual(s) Acts committed by individual(s)
acts of foreign or domestic terrorism. acting on behalf of any foreign acting on behalf of any foreign
person or interest to coerce the person or interest to coerce the
civilian population of the U.S. civilian population of the U.S.
or to influence the policy or or to influence the policy or
affect the conduct of the U.S. affect the conduct of the U.S.
government by coercion. government by coercion.
Territory U.S. only. U.S. only. U.S. only.
Certification $5 million $5 million $5 million
Federal Backstop $100 million $50 million in 2006, $100 $5 million
Trigger million in 2007
Insurer Retention 20%—applied against prior year direct earned 17.5% in 2006, 20% in 7% in 2003, 10% in 2004,
premium. 2007—applied against prior 15% in 2005—applied against
year direct earned premium. prior year direct earned
premium.
Government 85% 90% in 2006, 85% in 2007 90%
Share-Excess of
Retention
Recoupment/ Formula will be calculated using several Included with much discretion Included with much discretion
Pay-Go factors: the size of the total loss, the amount of on part of Secretary of on part of Secretary of
the industry aggregate retention, the amount that Treasury—subject to maximum Treasury—subject to maximum
the insurers actually retain, and the amount of the 3% per year applied to 3% per year applied to
federal government reimbursement. There is no policyholders’ premiums. policyholders’ premiums.
maximum on the amount that will be applied to
future policyholders’ premiums. For events that
occur before 2011, this amount must be
collected by 9/30/2012. For events that occur after
1/1/2012, it must be collected by 9/30/2017.
Congress and the Treasury Department will have
some flexibility in how this is implemented.
6 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
13. TRIA was first enacted on November 26, 2002, after the iv. to have been committed by an
September 11, 2001, terrorist attacks created a severe individual or individuals, as part of an
market shortage for terrorism insurance. It has since effort to coerce the civilian population of
been extended two times, in December 2005 and again the United States or to influence the
in December 2007 as the Terrorism Risk Insurance policy or affect the conduct of the U.S.
Program Reauthorization Act of 2007 (TRIPRA). For the government by coercion.
purposes of this report, TRIA may be referred to as
TRIA, TRIPRA, or the Act. In instances where it is B. No act shall be certified by the Secretary as an
necessary to distinguish between the three, the act of terrorism if:
accompanying text will do so. i. the act is committed as part of the course
of a war declared by the Congress, except
TRIA contains a make-available provision, which
that this clause shall not apply with
means insurers—including captives licensed in the
respect to any coverage for workers’
United States and surplus lines insurers approved as
compensation; or
nonadmitted insurers in any state—must make TRIA
terrorism insurance coverage available to their clients. ii. property and casualty losses resulting from
Although it is mandatory for insurers to offer terrorism the Act, in the aggregate, do not exceed the
coverage, it is not mandatory for insureds to purchase $5 million threshold.”
the coverage.
The issue of noncertified acts of terrorism remains
There have been some changes to the Act during its an important consideration. While coverage through
two extensions, as illustrated on the previous page. TRIPRA removes any exclusion to the extent the act
The most significant change in TRIPRA is that the of terrorism is certified, some property insurers add
definition of an “act of terrorism” has been revised. exclusionary language related to noncertified
The requirement that an act be committed by an terrorism coverage.
individual on behalf of any foreign person or foreign
interest in order for it to be certified as an “act of Noncertified terrorism coverage can provide
terrorism” for purposes of reimbursement has been protection for:
removed. In other words, TRIPRA covers domestic
terrorism, which was excluded in previous versions events that are not intended to coerce the civilian
of TRIA. population or to influence the policy or affect the
conduct of the U.S. government by coercion (for
A distinction remains between acts that are certified example, animal rights attacks and/or where an
and noncertified. The full definition of a certified act of individual or corporation is the target and not the
terrorism is: public);
A. “Certification – The term “act of terrorism” events that take place outside of large civilian
means any act that is certified by the Secretary centers where a very limited section of the public
of the Treasury, the Secretary of State, and the may be the target—such as a group of employees—
Attorney General of the United States: and not the civilian population in general;
i. to be an act of terrorism; acts of terrorism with less than $5 million in insured
losses across all lines of insurance and from all
ii. to be a violent act or an act that is
dangerous to human life, property, or insurers; and
infrastructure; events that are not certified by the Secretary of the
iii. to have resulted in damage within the Treasury, Secretary of State, and the Attorney General
United States, or outside the United States of the United States.
in the case of an air carrier or vessel (as
described in the Act); or the premises of a
United States mission; and
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 7
14. The following are some other key issues under TRIA: Government recoupment: TRIA includes provisions
for both mandatory and discretionary recoupment if
Trigger and threshold: To clarify how the trigger and the government makes payments following a TRIA-
the threshold work, the amount necessary for certified loss. For any program year beginning with
certification of an act is $5 million, but any outlay of 2008 through 2014, the insurance marketplace
federal funds is prohibited unless the event reaches aggregate retention amount is the lesser of $27.5
the trigger of $100 million. billion and the aggregate amount, for all insurers, of
insured losses from program trigger events during
Cost of coverage: The Act does not provide specific the program year.
guidance on pricing; however, insurers may charge an
additional premium for coverage provided under TRIA. Standard Fire Policy (SFP) Statutes
TRIA preempts state regulations for prior approval of
rates. Still, TRIA retains a state’s right to invalidate a The Standard Fire Policy (SFP) is mandated by statutes
rate as excessive, inadequate, or unfairly in 29 states to cover direct losses from fire and
discriminatory. lightning (see “SFP States”). It sets forth the conditions
under which such a loss is deemed to have occurred.
Terms and conditions: Insurers are required to make
In some situations where terrorism is excluded under
coverage for “certified acts” available to their
a property policy covering the peril of fire, the issue
policyholders on terms and conditions that do not
is whether losses are covered if they arise from a fire
materially differ from the policy’s other property and/
caused by a terrorist attack.
or casualty coverages. Insurers are also required to
offer the coverage at each renewal, even if the insured
declined coverage previously. TRIA does not require Standard Fire Policy Exclusions
insurers to offer specific terms and conditions SFPs generally exclude losses arising from a fire
for required coverages. caused by:
enemy attack by armed forces, including military action
Adequate disclosure: TRIA requires insurers to taken resisting such attack;
provide their policyholders with “clear and
invasion or civil war;
conspicuous” disclosure of both the premium being
insurrection, rebellion, revolution, or usurped power;
charged for TRIA coverage and the share of
reinsurance provided by the federal government. If the the order of any civil authority;
insured rejects an offer to purchase terrorism coverage, neglect on the part of the insured to take reasonable
the insurer may reinstate a terrorism exclusion. measures to save the property; and
theft.
Government participation: The federal
There are also several "conditions suspending or restricting
government will cover 85 percent of certified losses
insurance," which are similar to exclusions. These include
once an insurer’s deductible is reached. An individual losses that occur:
insurer’s deductible is a percentage of its direct earned
when the insured has increased the hazard;
premium (DEP) for the prior year for the commercial
lines of coverage subject to TRIA; the percentage is set when the building is vacant; or
at 20 percent. as a result of riot or explosion, unless fire follows the
explosion, in which case the loss caused by the fire, and
TRIA caps the total liability of the program and of not the loss caused by the explosion, is covered.
insurers—including the insurers’ participation and The SFP may be supplemented by endorsements extending
deductibles—at $100 billion in any one program year. If coverage to additional perils, provided that such coverage is
insured losses exceed $100 billion, then the not inconsistent with the provisions of the SFP.
allocation of loss compensation to insurers within
the $100 billion cap will be determined by Congress.
Insurers would not be liable for certified losses in
excess of this amount unless Congress were to pass
legislation increasing the limit.
8 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
15. Regulators would likely consider any attempt to waive
the SFP’s substantive protections to be a violation of SFP States
public policy, rendering them unenforceable. Any The Standard Fire Policy is mandated in the following states:
diminution in coverage—specifically, any restriction in
fire coverage—may be declared null and void by the Alaska (personal lines only) Nebraska*
states. Arizona* New Hampshire*
California New Jersey*
These statutes provide for an only actual-cash-value Connecticut* New York
recovery; there is no time-element protection. In effect, Georgia North Carolina
if an insured’s policy contains an exclusion for Hawaii North Dakota*
terrorism or if the insured decides not to purchase
Idaho* Oklahoma*
TRIA coverage, the SFP law for property in these 29
Illinois Oregon
states may offer some protection to insureds, although
Iowa Pennsylvania*
14 of these—Arizona, Connecticut, Idaho, Louisiana,
Michigan, Minnesota, Nebraska, New Hampshire, New Louisiana* Rhode Island*
Jersey, North Dakota, Oklahoma, Pennsylvania, Rhode Maine Virginia*
Island, and Virginia—have passed legislation to exclude Massachusetts Washington
acts of terrorism. An SFP state could compel the Michigan* West Virginia
insurer to pay for the direct damage from a fire caused Minnesota* Wisconsin
by an act of terrorism on an actual-cash-value basis, Missouri
despite the presence of a terrorism exclusion in the
*This state has passed legislation to exclude (or allow
insuring agreement.
insurers to exclude) acts of terrorism from SFP policies.
Insurers argue that it is unfair for them to remain
potentially liable under statues for so-called
fire-following losses when policyholders can reject
TRIA or other terrorism coverage and pay no premium
for fire-following coverage.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 9
16. 4
Findings and Analysis:
Property Terrorism Purchasing in 2009
The terrorism insurance market is robust and Companies with TIV between $100 million and
continues to support insureds’ risk transfer needs. $500 million tend to have no more than three
The percentage of companies buying property insurers involved in their insurance programs.
terrorism insurance—the terrorism insurance
Companies with TIV less than $100 million
take-up rate—has generally increased since the
generally entail a smaller spread of risk, have lower
enactment of TRIA in 2002. In 2003 the take-up rate
overall premiums, and work with a single insurer.
was 27 percent; over the subsequent years the
number of companies purchasing terrorism increased
Chart 2: Terrorism Take-up Rates by TIV
steadily to 61 percent in 2009 (see Chart 1).
2007 2008 2009
Chart 1: Terrorism Take-up Rates by Year 65%
61% 61%
63% 63%
61% 62% 62% 64%
2003 27% 55%
2004 49% 47% 49%
2005 58%
2006 59%
2007 59%
2008 57%
2009 61%
<$100 m $100m - $500m $500m - $1b >$1b
Take-up Rates by Company Size
Changes in take-up rates analyzed by company size
Marsh established four categories of total insured were marginal in the years 2007 through 2009. The
value (TIV) as the measure of company size to aid in take-up rates for smaller companies—i.e., companies
our analysis: with TIV under $100 million—continued to increase
gradually from 47 percent in 2007 to 55 percent in 2009.
Companies with TIV in excess of $1 billion are
This 2009 take-up rate is lower compared to larger
major accounts for insurers, paying large companies: 62 percent to 64 percent of which purchase
premiums. They typically work with several terrorism insurance. Take-up rates for companies with
insurers. A number of these companies used their TIV between $100 million and $500 million increased
existing captives or established new captive nominally, while companies with TIV in excess of $500
insurers to provide TRIA coverage. million fluctuated slightly during the same time period.
% Companies with TIV between $500 million and $1
billion are large organizations that typically work
with multiple insurers and have layered programs.
10 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
17. Take-up Rates by Industry Conversely, take-up rates among energy and food and
beverage companies have steadily declined during the
According to Marsh’s analysis, utility companies three-year period 2007 to 2009. Only approximately
purchased property terrorism insurance at a higher four out of every 10 companies in these sectors
rate than any other industry segment in 2009: 80 purchased terrorism insurance in 2009. Manufacturing
percent of companies did so. Analyzing the data by is the only industry whose take-up rate did not exceed
industry segments, companies in the real estate, health 50 percent at all during the last three years
care, transportation, financial institutions, and media (see Chart 3).
sectors have take-up rates above 70 percent, the
highest of the 15 segments surveyed. Industry Categories
This report examines property terrorism insurance
Chart 3: Terrorism Take-up Rates by Industry purchasing patterns for 15 industry groups. These industries
were selected based on criteria that included sample
2007 2008 2009 population size, perceived exposures, take-up rates, and
Utility premium rates. Other industry groups that are part of the
81% overall analysis—but are not reported on individually—
73% include agriculture, automotive, aviation, distribution,
80%
Real Estate nonprofits, professional services, and general services.
80%
73% The industry groupings in this report included, but were not
76%
Health Care limited to, the following lines of business:
71%
75% Construction: contractors, homebuilders, and general
76% contractors
Transportation
62% Education: universities and school districts
64%
75%
Energy: oil, gas, and pipelines
Financial Institutions
73%
68% Financial institutions: banks, insurers, and securities
74% firms
Media
64% Food and beverage: manufacturers and distributors
71%
71% Hospitality: hotels, casinos, sporting arenas, and
Hospitality
69% performing arts centers
67%
68% Health care: hospitals and managed-care facilities
Education
71% Manufacturing: all manufacturers, excluding
69%
65% aviation
Technology/Telecom
63% Media: print and electronic media
61%
61% Public entity: city, county, and state entities
Public Entity
61% Real estate: real estate and property management
55%
61% companies
Retail
58% Retail: retail entities of all kinds, including restaurants
54%
60% Technology/telecom: hardware and software
Construction manufacturers and distributors, telephone companies,
47% 1.0
49% and Internet service providers
52% 0.8
Manufacturing Transportation: trucking and bus companies
45% 0.6
43% Utility: public and private gas, electric, and water utilities
47% 0.4
Food & Beverage 0.2
51%
53% 0.0
42%
Energy
66%
62%
40%
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 11
18. Take-up Rates by Region coverage and noncertified acts coverage. However,
because the passing of TRIPRA in 2007 expanded the
In 2009, property terrorism insurance take-up rates definition of covered acts to included domestic
rose most significantly in the Northeast, increased terrorist events, many companies have elected not to
slightly in South and West, and remained flat in the purchase noncertified terrorism insurance in addition
Midwest. Interestingly, less than 50 percent of to purchasing TRIA as part of their property policies.
companies in the West purchased terrorism insurance (see Chapter 3 for a discussion regarding noncertified
over the past two years (2008 and 2009); the lowest acts under TRIPRA).
take-up rates among the four U.S. zones analyzed
(see Chart 4). More companies are securing terrorism insurance
through their captives and are purchasing
The Northeast still has the largest percent of reinsurance to cover their retention or liability under
companies purchasing property terrorism insurance, TRIA. Typically, those captives that do purchase
with nearly three out of every four companies reinsurance also often buy coverage for the
buying coverage. noncertified terrorism exposures.
The Cost of Terrorism Coverage
Chart 4: Terrorism Take-up Rates by Region
2007 2008 2009 We measured the cost of terrorism coverage both as
a premium rate—premium divided by TIV—and as a
71% 73%
percentage of a company’s overall property premium.
66% Using premium rate allows companies to track what
58% 60% 60% 58% they paid in absolute terms; percentage of overall
55% 55%
51% premium shows how terrorism coverage affected a
47%
44% company’s overall property insurance budget.
The cost of property terrorism insurance has fallen
gradually over the years, with a more significant drop
in 2009. The median premium rate for terrorism
insurance was down from $37 per million (0.0037
percent) in 2008 to $25 per million (0.0025 percent) in
2009.
Midwest Northeast South West
Cost by Company Size
Types of Coverage Companies Are Buying Property terrorism insurance rates typically decrease
as the size of the company increases (see Chart 5).
The vast majority of Marsh’s clients—approximately 90 Companies with TIV less than $100 million
percent—purchased their terrorism insurance as part experienced moderate median rate decreases in price,
of their property policies rather than as standalone from 0.0054 percent of TIV or $54 per million in 2008
placements. However, standalone policies are an to 0.0053 percent or $53 per million in 2009, and their
important alternative and/or supplement to TRIA terrorism premium rates remained relatively higher
coverage for some companies. The primary purchasers than those of larger companies. Companies with TIV
of standalone policies have been hospitality between $100 million and $500 million saw median
companies, large real estate firms, and financial rates decrease from $36 per million in 2008 to $32 per
institutions. Retail companies, media entities, million in 2009. Businesses with TIV between $500
transportation, public entities, and utilities also million and $1 billion were the only segment to
purchased standalone terrorism policies; however, in experience a median rate increase, albeit a small one:
lesser amounts. premium rates in 2009 were $29 per million, up slightly
from $27 per million in 2008. For the largest
Prior to the last extension, when companies companies, those with TIV more than $1 billion, the
purchased terrorism coverage as part of their property median rates remained flat at $27 per million.
policies, they generally purchased both TRIA
12 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
19. Cost by Industry
Chart 5: Terrorism Pricing -
Median Rates by TIV (Rates per Million)
Compared to last year’s rates, 2009 property terrorism
2007 2008 2009
insurance premium rates by industry show median
$63 rate decreases for 11 of the 15 industry categories:
$54 $53 construction, utility, financial institutions,
transportation, energy, media, public entity, food and
$40 beverage, manufacturing, health care, and education.
$36 Rates increased significantly for real estate companies,
$32
$29 $27 $29 $28 $27 $27 moderately for hospitality and technology/
telecommunications firms, and remained flat for retail
organizations (see Chart 7).
Chart 7: Terrorism Pricing -
<$100m $100m - $500m $500m - $1b >$1b Median Rates by Industry (Rates per Million)
2008 2009
When examining cost as a percentage of overall Construction
property premiums (see Chart 6), 2009 saw increases $76
$65
for companies of all sizes, except those with TIV
Hospitality
between $100 million and $500 million. This $54
$55
indicates that the cost for terrorism coverage
generally increased disproportionately with the Utility
$59
overall property market rate changes experienced $51
$65
$76
during 2009. Companies with TIV less than $100 Real Estate
$42
million experienced the largest increase, as $50
terrorism insurance represents a larger proportion Financial Institutions
of their overall property programs than it does for $62
$47
$59 larger organizations. Also, terrorism insurance rates Transportation
do not tend to have as wide a range as property rates $74
$46
and are less subject to credits for higher retentions
Energy
and loss-control efforts. Thus, terrorism insurance $50
$62 represented a larger share of the overall property $35
premium budget for the smaller companies. Media
$74 $46
$30
Technology/Telecom
Chart 6: Terrorism Pricing as Percentage of $24
Property Premium by TIV $29
2007 2008 2009 Retail
$26
22% $26
Public Entity
$30
16% $25
14%
11% Food & Beverage
$36
8% 8% $24
6% 5% 6% 5% 7%
4% Manufacturing
$29
$23
<$100m $100m - $500m $500m - $1b >$1b Health Care
$25
$19
Education
$23
$16
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 13
20. Construction, hospitality, utility, and real estate When looking at terrorism insurance pricing as a
companies experienced the highest median premium percentage of overall property premiums, financial
rates for terrorism insurance in 2009, exceeding $50 institutions and transportation companies paid the
per million of TIV. Rates decreased most dramatically largest share, allocating 24 percent and 17 percent of
for transportation, from $74 per million in 2008 to $46 their total property programs, respectively. This
per million of TIV in 2009. Media and energy represents the largest increase as a percentage of total
companies also experienced significant reductions in property cost among all industry groups. Retail and
median rates, reductions greater than 30 percent over real estate companies also paid a larger
2008. percentage of their total premiums for terrorism at 10
percent each. Hospitality firms saw significant
decreases in the percentage of property premium paid
Chart 8: Terrorism Pricing as Percentage
for terrorism, down from 13 percent in 2008 to 4
of Property Premium by Industry
percent in 2009 (see Chart 8).
2008 2009
Financial Institutions Cost by Region
14%
24%
The West region experienced the largest price
Transportation
11% decreases in 2009, followed by the Midwest then the
17% Northeast. The South saw only marginal rate deceases
Real Estate between 2008 and 2009. However, the overall rate
6%
2008
10% reduction for the period 2007 to 2009 was greater for
Retail the Midwest than for any other region—premium
6% rates decreased from or $47 per million in 2007 to $21
10%
per million in 2009. Terrorism insurance is the most
Media
expensive in the South and the Northeast, based on
2009
8%
8% premium rate (see Chart 9), although the variation by
Public Entity region has narrowed.
5%
7%
Manufacturing Chart 9: Terrorism Pricing -
6%
6% Median Rates by Region
Technology/Telecom (Rates per Million)
6%
5% 2007 2008 2009
Education 2008
8% $47 $47
5% $44
$41 $42 $40 $38 $40
Health Care $36
4%
5% $28 $30
Utility $21
7%
5%
Hospitality
2009
13%
4%
Midwest Northeast South West
Energy
2%
3%
Construction
3%
Terrorism pricing as a percentage of property
3%
premium varies in the four U.S. zones are analyzed.
Food & Beverage
4% Terrorism accounts for only an average of 3 percent of
2%
total property premiums for companies in the Midwest
and West, compared to 5 percent and 6 percent in the
14 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
21. South and Northeast, respectively. Much of this can be It was expected that the economic downturn
explained by the terrorism exposures faced by experienced in 2008 and 2009 would have affected how
companies in these regions. Companies in major companies budget for their overall insurance
metropolitan areas—New York, Washington, DC, and programs, and that terrorism insurance would likely
Boston, for example—are likely to pay a higher be cut back in an effort to generate cost savings.
premium for their terrorism coverage, which results in Surprisingly, this did not happen at the magnitude
a larger percentage of their overall property insurance some had predicted. Despite a changing and uncertain
costs dedicated to terrorism. marketplace, terrorism insurance take-up rates
continued to climb during 2009 as companies of all
Chart 10: Terrorism Pricing as Percentage of sizes and in all industries across the United States
Property Premium by Region continued to purchase the coverage. Most companies
2007 2008 2009 that purchased terrorism insurance in the past
continue to do so as markets continue to underwrite
6%
5% 5% 5% the risk, with the support of the TRIA federal backstop.
4% 4% 4% 4%
3% 3% 3% 3% The reauthorization of TRIA through 2014 has
afforded needed capacity in the market for terrorism
insurance. Property insurers are able to include
Midwest Northeast South West terrorism insurance in their risk portfolios at nominal
rates to insureds. Clearly, the demand for terrorism risk
insurance remains.
Conclusion
In 2009, property terrorism insurance rates generally
decreased across the board. The property insurance
market remained virtually flat, due in large part to a
lack of significant catastrophic losses in 2009. Premium
rates did increase for certain risks, however, and some
companies with significant exposures to those
particular risks experienced similar increases in their
terrorism insurance rates.
First quarter 2010 premium rates for both property
and terrorism insurance typically renewed with slight
decreases. It is important to note, however, that a
number of natural catastrophes occurred in the first
few months of 2010—notably a series of significant
earthquakes. Although much of the losses from these
events were not insured—thus not affecting insurers’
surplus—it remains to be seen whether the events will
put an upward pressure on property rates. If there are
relatively few significant losses from natural
catastrophe or terrorism events in the rest of 2010, the
insurance market may moderate and keep property
rates flat or near flat.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 15
22. Methodology
This chapter relies on data from Marsh clients that purchased property terrorism insurance across the United States. Purchasing
patterns are examined in the aggregate as well as on the basis of client characteristics such as size, industry, and region.
The 2009 data come from property insurance placements incepting during calendar year 2009. To account for skews within the
regional and total insured values (TIV) data sets, the national annual figures were weighted. The study population does not include
placements in the United States for foreign-based multinationals or for small-firm placements made through package policies.
The 2009 study was based on a sample of 1,382 firms with the following characteristics:
Minimum Median Maximum
TIV $75,000 $303 million $303 billion
Property Premium $1,059 $295,755 $56 million
Terrorism Premium $1 $9,541 $11 million
Unless otherwise noted, the calculations include TRIA policies, noncertified policies, standalone policies, and placements made
through captives. For some companies, insurers quoted only a nominal terrorism premium of $1. These $1 premiums were omitted
from the calculations of the median terrorism premium rates. In respect to the calculation of terrorism premium as a percentage of
property premiums, standalone terrorism premiums were omitted.
Companies were assigned to regions based on the locations of the Marsh offices that served them. Generally, this was the Marsh
office most closely located to a company’s headquarters. Many of our clients have multiple facilities across the country and around
the world, meaning the potential risk for a terrorist attack may not be fully represented by where a company is headquartered.
Having said that, the decision as to whether to purchase terrorism insurance is typically made at headquarters.
The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy. It should be
understood to be general risk management and insurance information only.
16 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
23. 4
5 The Standalone Terrorism Marketplace
After the attacks of September 11, 2001, and prior to Coverage for international locations: Standalone
the enactment of TRIA, the standalone terrorism coverage, unlike TRIA coverage, is available for
insurance market was the main source of capacity for most locations worldwide. Companies with
companies looking to obtain property terrorism overseas exposures often look to the standalone
insurance. Mainstream property insurers were market to provide solutions not satisfied by local
generally unwilling or unable to provide the coverage. government terrorism insurance schemes
(see Chapter 9 for a list of worldwide pools).
Today, the standalone insurance market continues to
Reinsurance of U.S.-domiciled captives for
provide terrorism coverage, at times competing with
“all risk” property insurers that provide TRIA TRIA-certified terrorism: Some of the standalone
coverage and at other times complementing the insurance markets offer policies to reinsurance
coverage provided by TRIA. Standalone insurance captives for the captive deductible—the 15 percent
markets also serve companies whose needs are not of TRIA-certified losses that are not covered by
met by the Act. For example, in situations where the the federal government once the captive insurer’s
“all risk” program terrorism limits cannot be filled deductible is reached—and the liability resulting
by “all risk” markets, then the standalone insurance from TRIPRA’s $100 million trigger.
market may offer alternative capacity. Capacity in the Noncancelable coverage: Standalone policies that
standalone terrorism insurance market has grown cannot be canceled by either party—other than for
considerably over the years; insurers now offer a nonpayment of premium—are available.
theoretical maximum of $3.76 billion in capacity.
The standalone property terrorism insurance market
offers coverage for both TRIA-certified and noncertified
risks and enables companies to tailor the capacity to
their coverage needs. Other features of this insurance
alternative include the following:
Coverage for noncertified risks: Some companies
buy TRIA-certified terrorism coverage within their
“all risk” property programs to cover U.S. locations
and use a standalone policy for noncertified risks.
Coverage for gaps in other policies: In situations
where the “all risk” program limits cannot be filled
by “all risk” markets—typically, for noncertified
risks—the standalone insurance market can be
used to fill gaps in limits.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 17
24. Standalone Terrorism Global Market Capacity as of Q2 2010
The standalone property terrorism insurance market as of the second quarter of 2010 has a number of insurers
as follows:
Insurer (Company) S&P Rating A.M. BEST Rating Maximum Capacity (US$ millions)*
ACE American Insurance Company A+ A+ p XV 25
Aspen Specialty Insurance Company - A g XV 30
AXIS Specialty Limited A+ A XV 150
Chartis A+ A p XV 250 - 1,000
Glacier Reinsurance AG - A- IX 40
Hiscox Insurance Company, Inc. - A VII 100
International Insurance Company of Hannover AA- A VIII 25
Lancashire Insurance Company Limited - A- XII 200
Lloyd's of London A+ A XV 900
Montpelier Reinsurance Limited A- A- XIII 50
National Fire & Marine Insurance Company AA+ A++ g u XV 1,000+
Transatlantic Reinsurance Company A+ A g XV 50
Validus Re - A- XIV 50
Western Re/Managers Inc. A+ A XV 100
Westport Insurance Company A+ A g XV 40
* as of April 1, 2010 Theoretical maximum: $3,760
Although a significant attack has not struck U.S. soil since September 11, 2001, terrorism remains a very real and present threat
worldwide. A number of events and attempts have occurred in recent years, notably the following.
2009-2010:
Moscow, Russia – Metro subway system bombings (March 29, 2010)
Buenos Aires, Argentina – Bomb exploded at Banco Nación branch (March 17, 2010)
San Salvador, El Salvador – Bombing at offices of Rio Lempa Hydroelectric Power Plant Executive Commission (March 18, 2010)
Athens, Greece – Bombing of building housing ultra nationalist group Golden Dawn (March 19, 2010)
Jakarta, Indonesia – JW Marriott and Ritz-Carlton bombings (July 17, 2009)
Lahore, Pakistan – Sri Lanka cricket team bus attack (March 30, 2009)
2004-2008:
Mumbai, India – Attacks on eight different sites including hotels and train station (November 26-29, 2008)
Islamabad, Pakistan – Marriot Hotel bombing (September 20, 2008)
Amman, Jordan –– Bombs at Grand Hyatt hotel, Radisson SAS Hotel, and Days Inn (November 9, 2005)
Bali, Indonesia – Beach Resorts (October 1, 2005)
London, United Kingdom – Underground train and bus bombings (July 7, 2005)
Jakarta, Indonesia – Australian Embassy (September 9, 2004)
Madrid, Spain – Commuter train bombings (March 11, 2004)
Moscow, Russia – Metro subway bombing (February 6, 2004)
There has also been a spate of unsuccessful attempts in recent years, including the failed Times Square bombing attempt in
the spring of 2010, the attempted bombing of a Detroit-bound Delta flight on Christmas Day 2009, foiled plots to attack
Heathrow and Glasgow airports, and plots to disrupt U.S. and European transportation systems. These attempts have helped to
keep the threat of terrorism at the forefront of risk management decision-making.
18 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
25. Market Underwriting Position Chartis/Lexington offers coverage for U.S. domestic
locations as well as foreign locations. Lexington
Standalone rates can at times be more competitive has increased capacity for U.S. domestic terrorism
than the pricing of embedded terrorism in property insurance, up to a theoretical policy limit of $1
programs. In the standalone property terrorism billion, which is available on a case-by-case basis.
market, capacity—the limit of coverage that is ACE continues to restrict its standalone terrorism
available for a single risk—is relatively stable, but it capacity to accounts in which it has a significant
can vary considerably, primarily due to: property position. Their position is to support the
ACE Global Property branches for foreign exposures
Location of risk: The demand for coverage in major
only.
metropolitan areas has a substantial effect on the
available capacity. Monitoring of aggregates is a priority for all
insurers. Capacity in top-tier cities is priced
Insurer’s accumulation of exposure: Insurers have
accordingly.
aggregate limits on the risks they can take. Capacity
Marsh is able to secure manuscript contingent
can be limited in certain locations, particularly in
business interruption cover including first and
major metropolitan areas such as New York City,
third party assets with extensions for port
where some underwriters currently have severe
blockage, rail infrastructure, and power supply.
aggregation issues.
Concentration of exposure: Terrorists attack
Coverage Issues
targets of opportunity. Although it is certainly
possible that an attack could occur anywhere— All standalone markets use the T3/T3A policy forms.
including a remote town or shopping mall— Some markets will support a Marsh enhanced T4/
demand for coverage will likely be higher in T4A form. A manuscript terrorism form from Marsh
metropolitan areas simply because there is a is available from some markets. The chart on page 20
greater concentration of exposures. compares some of the characteristics of standalone
coverage and TRIA coverage. (Marsh would have to
Market Capacity:
undertake a complete review of any form issued to
– apacity has increased significantly for
C provide a detailed comparison of coverage.)
exposures outside central business districts
(CBD). Product Enhancements
– Approximately $750 million to $2 billion per The following are among those developed by
risk in standalone capacity is available to standalone property terrorism insurers:
companies that do not have sizeable
exposures in locations where insurers have Chartis/Lexington's BioChem ShieldSM can offer a
aggregation problems. Capacity excess of $2 sublimit of up to $25 million aggregate for
billion is available, but is more expensive. biological/chemical terrorism; this excludes
nuclear or radiological terrorism. It is offered as an
– For locations where markets have aggregation
endorsement to a standalone terrorism policy or to
issues—particularly New York City—the
a company’s “all-risk” program.
estimated market capacity is approximately $1
billion: additional capacity can be accessed at Chartis/Lexington's Op ShieldSM covers business
significantly higher rates. interruption and extra expense losses triggered by
a civil or military authority order to evacuate that
Bowring Marsh operates a Worldwide Terrorism
arises from either a terrorist act or a threat of
Facility with 13 Lloyd’s syndicates that provides up terrorism. It is offered as an endorsement to a
to $250 million of capacity for worldwide standalone terrorism policy or to an insured’s
terrorism property damage and business “all-risk” program. Lexington can offer a sublimit of
interruption coverage. The facility is designed to up to $25 million aggregate. There is a 72-hour
accept terrorism risks for metropolitan waiting period and the indemnity period is limited to
city centers. 30 days.
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 19
26. Hiscox at Lloyd's Liability Terrorism Insurance
The state-specific solution offers coverage for
covers damages and claims expenses that the losses incurred due to an NCBR terrorist event in
insured is liable to pay due to any claim or claims a specific state so long as the event is deemed to
for bodily injury and/or property damage. The have originated in the named state.
policy includes defense cost expenses. The limit
available is between $50 million and $100 million This NCBR solution is offered for several
aggregate. This is a claims made and reported insurance lines—including property damage,
policy. The reporting provision is as soon as business interruption losses, and workers’
reasonably possible and in no event longer than 90 compensation—and pricing is based on the
days after the expiry of the policy. A 72-hour product covered as well as the perceived
occurrence clause applies. probability in the specific ZIP code or state.
Lloyd's of London's Riots, Strikes, Civil
Commotions, and Malicious Damage covers
insured property damage or business interruption
losses caused by an act or series of acts of riots
and/or strikes and/or civil commotions
and/or malicious damage. A 72-hour occurrence
clause applies.
Catlin Bermuda Worldwide NCBR Terrorism Cover
provides nuclear, chemical, biological, and
radiological (NCBR) coverage for individual
locations or a specific state. For individual
locations, the specific ZIP code of the property
and a radius around this ZIP code is required.
This product is available to individual commercial
purchasers or by insurers desiring to remove peak
risks.
Comparison of Typical Standalone Coverage and TRIA Coverage
Standalone Property Terrorism TRIA as Part of "All-Risk" Property
Covers acts of certified and noncertified acts of terrorism and can be Covers certified foreign and domestic acts of terrorism.
extended to cover political violence perils.
Can cover locations inside and outside the United States. Covers only U.S. locations.
Limits are typically aggregated or with one reinstatement; Per-occurrence limits that match property policy limits.
occurrence limits may be available.
Account- and terrorism-specific deductibles. Deductibles match property policy deductibles.
Location- and schedule-specific. Coverage for all locations, including unscheduled, depending on
terms of property policy.
Non-cancelable policy available. Cancelable terms follow property policy.
Long-term policies up to three years available. Policies typically written for one year.
Select insurance markets. All markets that meet insurer definition under TRIA.
20 | The Marsh Report: Terrorism Risk Insurance 2010 www.themarshreport.com/terrorism2010
27. 6
Workers' Compensation and Liability
Coverages
Workers' Compensation Historically, rate makers included a small,
undifferentiated charge for potential catastrophic
Largely because it is controlled by the states, which losses in their overall rates.
have not allowed exclusions for terrorism losses,
workers’ compensation presents unique challenges Pursuing a more explicit approach, the National
to insurers, brokers, and risk managers. Insurers and Council on Compensation Insurance (NCCI)
qualified self-insured employers cannot exclude approved the “Domestic Terrorism, Earthquakes,
coverage for acts of terrorism from workers’ and Catastrophic Industrial Accidents Premium
compensation policies as they can with other Endorsement (DTEC)” for workers’ compensation,
insurance lines. Nearly all states require employers which took effect January 1, 2005. The endorsement
or insurers to pay medical costs and wage simply reflects the revised definition of terrorism to
replacement without limits or exclusions for include domestic events and the disclosure of the
workers injured on the job. Workers’ compensation $100 billion cap. It provides funding for some
provides lifetime medical care for on-the-job catastrophic losses, including acts of terrorism
injuries, leading some computer models to project specifically excluded by TRIA, but not for
that the “worst-case” cost of a terrorism incident TRIA-certified acts of terrorism.
could exceed $90 billion. In contrast, some experts
put the total workers’ compensation capacity for the The endorsement defines a $50 million loss
entire insurance marketplace at $30 billion. aggregate threshold for workers’ compensation for:
Risk managers should be aware that insurers all acts of terrorism outside the scope of TRIA;
carefully calculate and try to limit their exposures earthquake—defined as a single event involving
to high concentrations of risk. Multiline insurers are underground movement along a fault plane—or
particularly sensitive to site-specific accumulations volcanic activity; and
of risk. As a result, care should be taken to obtain
insurance-market alternatives for workers’ catastrophic industrial accident, which qualifies if
compensation programs that are likely to be affected a single event results in the losses.
should a terror event occur. Even where the insurer The premium for this endorsement is calculated as
renews, insureds should be wary of larger retentions, rate multiplied by payroll and is applied after the
accompanied by increasing amounts of collateral to standard premium. It is not, however, subject to any
support those retentions. other modifications such as premium discount,
experience rating, schedule rating, or retrospective
TRIA’s limitation to certified acts of terrorism has rating.
prompted state regulators and insurers to pay more
attention to finding premium mechanisms for
noncertified acts of terrorism. Despite improved
modeling, the frequency and severity of terrorism
risk remains difficult to adequately assess, especially
when compared to other potential catastrophic
losses (i.e., windstorm or earthquake).
www.themarshreport.com/terrorism2010 The Marsh Report: Terrorism Risk Insurance 2010 | 21