May 24, 2004—A new study of 2,400 U.S. businesses by Marsh finds that rates for terrorism insurance dropped by 42 percent from the second quarter of 2003 to the fourth quarter. During the same two quarters, the percentage of businesses purchasing the coverage rose to more than 32.7 percent from 27.3 percent.
“As prices have come down, more companies are purchasing terrorism insurance—both under the Terrorism Risk Insurance Act of 2002 and the stand-alone terrorism insurance policies offered by various insurers,” said Jill Dalton, a managing director of Marsh and North American Property Practice Leader.
In the aftermath of September 11, 2001, insurance companies excluded terrorism risks from their commercial policies. The Terrorism Insurance Act, or TRIA, signed into law by President Bush in November 2002, requires insurance companies to offer insurance for certain acts of terrorism in the U.S. that are certified by the Secretary of the U.S. Treasury Department, the Secretary of State and the Attorney General. The terrorism coverage offered to insurance buyers under TRIA must be in amounts and have terms and conditions that do not differ materially from their other policies.
As an alternative, businesses can purchase separate, “stand-alone” terrorism insurance policies that do not require U.S. government certification.
Another issue that may affect purchasing decisions is the fact that 29 states have Standard Fire Policy statutes, which typically require property insurance policies to cover losses due to fire resulting from lightning and other perils. In certain situations where terrorism is excluded from an insurance policy, the issue is whether losses are covered if they arise from a fire caused by a terrorist attack.
“Insurance companies have lobbied effectively in seven of the 29 states to have terrorism specifically excluded from the Standard Fire Policy statute,” Ms. Dalton said. “As the protection in those states against fire-related terrorism losses is rolled back as a result of these actions, businesses may choose to purchase specific insurance protection against these potential threats.”
Among all-sized businesses, those with total insured property values between $500 million and $1 billion were most likely to purchase terrorism insurance. Of these firms, 39.7 percent obtain terrorism insurance, compared to 27.1 percent of businesses with insured values above $1 billion and 18.2 percent of those with insured values below $100 million.
With more than four in 10 (40.5 percent) of energy companies purchasing terrorism insurance, this industry sector was most receptive to the coverage. At 35.3 percent, media companies were second, followed by food and beverage companies (34.7 percent), habitational and hospitality industries (31.5 percent) and healthcare (31.0 percent).
Of the industry sectors analyzed, construction firms were least likely to purchased terrorism insurance with a take-up rate of 12.2 percent. Manufacturing firms had a take-up rate of 18.2 percent and one in five (20 percent) retailers purchased the insurance.
The study found that during the second and third quarters of 2003 the median cost of terrorism insurance available through TRIA was higher than that available on a stand-alone basis, but the situation reversed in the fourth quarter.
Copies of the report,Marketwatch: Property Terrorism Insurance 2004, are available from Marsh.
