Leaving terrorism insurance to be written without a US government backstop is a gamble that would create econo mic uncertainty, the International Underwriting Association (IUA) has warned.
Without a renewal of the Terrorism Risk Insurance Act (TRIA), private provision of terrorism insurance may disappear entirely in some areas and would almost certainly be much more expensive than it is today.
Writing to the US Federal Insurance Office the IUA stated that terrorism risk is unlike other insurable events due to the unpredictable nature of its occurrence both in frequency and severity. Insurers do not have the necessary intelligence information to predict the likelihood of a terrorist attack and the nature of the risk changes as US foreign and domestic policy evolves.
Dave Matcham, Chief Executive of the IUA, commented: “The insurance market has certainly made progress towards better understanding of terrorism risks in recent years and there is more private coverage available since 2001.
“By providing a backstop in the event of a catastrophic terrorist event the US government has provided the economic security to insure investment in the country, particularly in real estate and construction activities.”
Responding to a President’s Working Group analysis of terrorism risk insurance the IUA called on the government to extend beyond 2014 the backstop provided under TRIA.
The association argued that if such an action is not taken, or even slightly delayed, then private provision of terrorism insurance would likely be curtailed. This would expose taxpayers to significantly higher costs in the event of any attack and introduce economic uncertainty to some markets.
Mr Matcham added: “There is no doubt that TRIA has positively contributed to the private market for terrorism coverage and had a stabilizing effect on the wider economy.
“Its reauthorization would ensure continued benefit to insurers, their clients and the country.”
IUA member companies write substantial amounts of US business. The association’s own statistics show that for 2011 premium income for North America £2.6bn (approximately $4bn).