After TRIA, what next for terrorism coverage?

In anticipation of the conclusion of TRIA’s extension in 2007, Aon Risk Services has been encouraging clients to maintain their relationships with insurers in the stand-alone terrorism insurance market, or with those that build added protection into their all-risks policies by guaranteeing ‘full term’ TRIA coverage even if the act expires before the policy does, according to A.M. BestWeek.Upon the act’s expiration, Aon projects that 80% to 85% of the terror capacity will leave the market without the mandated offer of cover,” according to A.M. BestWeek, which cites as its source Aaron Davis, vice president of property syndication with Aon Risk Services.According to A.M. Best, Davis estimates there will be a maximum of US$400 million to US$600 million of all-risk market capacity available with full-term terrorism coverage, while limits of US$1 billion to US$1.2 billion will be available through a combination of stand-alone and all-risks.In the absence of a long-term plan, decisions on terrorism coverage must be short-term ones, according to Davis. “New entrants and specialty insurers might replace as much as 10% to 15% of the capacity, but it will not be the solution,” Davis is quoted as saying. “Increased pricing for limited aggregates will not be the solution. It will only result in severe declines in terrorism take-up rates, which will expose the economy on a post-event basis and will result in adverse selection to insurers.”