U.S. terrorism backstop failing, says Conning study

The U.S. Terrorism Risk Insurance Act of 2002 (TRIA) is failing to address the long-term issue of terrorism risk, says a new study by Conning Research & Consulting Inc. The study speculates that not only does the act not address why terrorism is so difficult to underwrite, but insurers may also be distracted from finding a long-term solution to terrorism risks by the temporary government backstop. “The placebo effect of passing this legislation is beginning to wear off,” says Bruce Thomas, vice president at Conning. “Although the act does not harm insureds or insurers in any substantive way, businesses and insurers are starting to recognize how little it actually does to solve any of their problems.”The study notes that TRIA does not cover all terrorism exposures, including domestic terrorism risks or losses from nuclear, biological or chemical attacks.”While the act will provide some capital relief in the event of another large-scale terrorist attack, it will not prevent insurers from becoming insolvent if their exposures are too concentrated,” adds Thomas. “This was a quick fix, but ultimately the insurance industry and its customers will need a long-term solution. This requires an in-depth understanding of terrorism risk and of the risk-spreading mechanisms that can be used to deal with it.”And despite the backstop, the report suggests some insureds still feel the price of coverage is too high. Some U.S. news sources are reporting that at the 90-day mark in the program, very few companies are signing up for the coverage, and widely varying price is one of the reasons.