Risk Management

The Price of Terrorism: No Insurance

Despite the terrorism insurance act, insurers aren't offering broad coverage for nuclear, biological, or chemical act of terror, survey finds.
David KatzJune 2, 2003

Remember the fuss the insurance industry made about the need for a federal backup for terrorism risk insurance?

It turns out that the Terrorism Risk Insurance Act that insurers managed to wrangle from the government last year hasn’t been much help in making coverage more available or reasonably priced for corporate insureds.

Or at least, that’s the take-away from a new survey of U.S. commercial-line insurers done by Moody’s Investors Service. According to the survey, as of April, few carriers were covering domestic acts of terrorism or selling stand-alone terrorism policies.

Further, no insurer is offering broad coverage for nuclear, biological, or chemical acts of terrorism, notes the report.

Pricing on the scant amount of coverage has cooled somewhat compared to what it was following September 11, 2001.

But terrorism coverage is still extremely dear. “Overall, the act does not yet seem to have increased the availability of terrorism insurance coverage at prices that most buyers would view as reasonable,” says James Bartie, a vice president/senior analyst with Moody’s property & casualty and reinsurance group in New York.

Why has the cost of coverage remained so high? It’s a self-protective device for insurers, according to Moody’s. Insurers are charging extremely high prices “to discourage policyholders from buying terrorism coverage in cities considered highly vulnerable to future attacks,” Bartie says.

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