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Federal Program Buoys Terrorism Insurance |
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by Mickey McCarter
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Monday, 14 July 2008 |
GAO finds TRIA has ensured the availability of terrorism insurance
Terrorism insurance remains readily available from large commercial insurance providers in the United States, although rates for the insurance in high-risk cities is often many times more than those in low-risk cities, according to a briefing from the Government Accountability Office (GAO) released July 11.
Property damage cost insurance companies an estimated $32.5 billion in the terrorist attacks of 9/11, GAO reported, prompting many insurance companies to stop offering coverage altogether due to the high claims. Congress thus passed the first Terrorism Risk Insurance Act (TRIA) in 2002 to encourage insurance companies to offer the insurance again under the assumption that the federal government would take a great deal of the responsibility for any insured losses due to a terrorist attack.
The most recent reauthorization of TRIA in 2007 added coverage for domestic terrorism to the program and specified that insurance companies would not be responsible for any losses that exceed $100 billion in a particular terrorist attack.
The 2007 TRIA reauthorization tasked GAO with determining if gaps in coverage existed despite the government guarantees. To fulfill this order, GAO conducted a study from January to June 2008, examining the availability and rates of the insurance in Atlanta, Boston, Chicago, New York, San Francisco, and Washington, DC. Yvonne Jones, GAO director of Financial Markets and Community Investment, presented the findings to the Senate in June.
"While terrorism insurance coverage currently appears to be widely available to commercial policyholders on a nationwide basis at rates policyholders viewed as favorable, some policyholders in urban areas (particularly Manhattan) experience challenges obtaining desired amounts of coverage or obtaining coverage at prices viewed as reasonable," Jones concluded in her presentation.
GAO rated Chicago, New York, San Francisco and Washington as high-risk cities in the study; Boston as moderate risk; and Atlanta as low risk.
Anecdotal evidence collected by GAO suggested that companies in New York City paid the highest rates for terrorism insurance, which could run twice as high as other high-risk cities. Insurance rates in high-risk cities could run as high as five times the rates in low-risk cities overall.
One national insurance broker told GAO that about 60 percent of US companies have purchased coverage under TRIA since 2005. About 80 percent of real estate companies did so in 2007. The northeastern United States has the highest percentage of total companies to hold terrorism insurance at about 70 percent (in 2007).
However, insurers still may sometimes turn down companies that apply for terrorism insurance for a number of reasons, GAO found. Insurance companies may turn down customers because a new property added to a portfolio may exceed an insurer's self-imposed limit of how much exposure it will take in a specific area.
Insurers also may decline to insure properties based on the views of rating agencies on "the amount of capital allocated to terrorism risk and location of risks; availability of reinsurance; and state rate regulation and the extent of market pressure to keep rates competitive," GAO reported.
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Mickey McCarter |
| About the author: |
| eNewsletter Editor/Senior Washington Correspondent,
is a journalist with more than a decade of experience in reporting
on
military affairs and information technology.
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