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Terrorism insurance is Insurance purchased by property owners to cover their potential losses and liabilities that might occur due to Terrorist activities. It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 Attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of Premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in Casualty and Property Insurance , or else require endorsments to provide coverage. A risk manager looking for terrorism coverage is going to be facing quite a search. Some commercial insurers are offering terrorism insurance, despite the lack of a federal terrorism backstop and inaccurate techniques for modeling the risk. In general, the policies are restrictive and limited to a select few policyholders.Insurers are being very selective about who they underwrite and have only a very limited capacity to write this coverage, especially since no backstop has yet been approved in Washington. In fact, the majority of the insurance market isn't offering coverage. According to a recent study by both the Independent Insurance Agents of America (IIAA) and the Alliance of American Insurers (AAI). According to a study conducted in February of 2002 eighty percent of insurance companies have excluded or have indicated that they will exclude terrorism from commercial policies. Some of the language on the terrorism policies tends to be somewhat overly restrictive. For example, things like riot and vandalism would be covered, but if someone does it for a political cause they would not be covered. The pricing of the product, since early December, has moderated drasticly. Some of the underwriters are willing to offer more reasonable terms. The quotes that have been seen earlier were in the area of half of one percent to five percent rate online. If you're buying $10 million in limit, it was costing you somewhat in the range of $50,000 to $500,000. Recently,that range has moderated from two-tenths of one percent to 2 and half percent. The price of the policy really depends on where the clients are residing and how much limit they buy. INDUSTRY NEEDS Airlines and high-profile properties are paying large exorbitant sums for their terrorism insurance policies. The airline industry, specifically, is struggling to meet the $750 million in coverage that the government requires. Concentration of risk is another factor in determining availability for terrorism insurance. Due to the concentrated losses of the World Trade Center, carriers were hit with massive losses in one centralized location. In the past if you had a fire on a block with 10 insureds, all 10 insureds might not be lost in that fire. With terrorism, you realize that in a two-block area, you could lose all 10 insureds at the same time. MODELING THE RISKS In a report issued in March 2002, Swiss Re officials speculate that it could take three to five years for the private insurance industry to develop the means to cover terrorism. Insurance companies are using an approach that is similar to that used with natural catastrophe risks. The Swiss Re report suggested that in this case where demand is greater than the supply for terrorism coverage that a short-term solution is possible: a mix of government and private resource to make easy the transition. In this situation, the government would serve two functions: to establish rules to overcome the capacity shortage and to be the insurer of last resort. CRISIS MANAGEMENT Crisis management planning can save large amounts money in the long run. According to experts, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes. NETHERLANDS Insurance payments related to Terrorism are restricted to a billion euro per year for all insurance companies together. This regards property insurance, but also life insurance, medical insurance, etc. US On November 26, 2002 President George W. Bush signed into law the Terrorism Risk Insurance Act (TRIA) which created a federal backstop for insurance claims related to acts of terrorism. The Terrorism Risk Insurance Act is intended as a temporary measure to allow time for the insurance industry to develop their own solutions and products to insure against acts of terrorism. The Act is set to expire December 31, 2005. IRAQ The New York Times reports that in Baghdad you can now buy terrorism insurance. One company offers such insurance for $90, and if the customer is a victim of terrorism in the next year, it pays the heirs $3,500. EXTERNAL LINKS
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