Expert Commentary

CIAB Shows Businesses Rejecting Terrorism Coverage

Insurers are offering terrorism coverage, but many U.S. commercial interests are not buying because they do not consider themselves targets and/or due to the high cost of coverage. Some high-risk properties nonetheless are finding the market tight. These are the findings of the Council of Insurance Agents & Brokers survey of its members, the top tier of the nation's insurance brokers who collectively write 80 percent of the commercial property/casualty premiums annually.

Terrorism Risk Management and Insurance, U.S. Insurance Market Update
March 2003

Insurers are offering terrorism coverage, but many buildings, businesses, and other commercial interests across the United States are not buying the insurance because they do not consider themselves targets of terrorism, the cost is too high, or both, according to a special terrorism insurance survey conducted by The Council of Insurance Agents & Brokers (CIAB).

Brokers noted, however, that in the days leading up to the war in Iraq, more businesses were buying coverage out of fear that terrorists may retaliate for U.S. actions in that region.

Nearly 60 percent of brokers responding to the survey said fewer than 10 percent of their small commercial property/casualty accounts and fewer than 20 percent of medium-sized accounts have purchased terrorism coverage offered to them by insurers. Of the brokers handling large accounts, 48 percent said fewer than one in five of the biggest customers have bought terrorism coverage.

The CIAB survey, conducted in the same manner as The Council's quarterly report on commercial property/casualty market trends, also provides the first national sampling of the cost of terrorism coverage. Most of the small and medium accounts are being assessed 10 percent of premium, while large accounts typically are paying 20 percent of premium or less.

The Council represents the top tier of the nation's insurance brokers who collectively write 80 percent of the commercial property/casualty premiums annually.

Council President Ken A. Crerar said responses of brokers to a number of open-ended questions indicate that despite the passage of the federal terrorism insurance backstop at the end of last year, there are some significant gaps in terrorism coverage around the country.

"On balance, the market is significantly more stable with the Terrorism Risk Insurance Act (TRIA) than without it. However, cost and availability of coverage remain key issues," Crerar said. "Small, relatively low-profile accounts seem to be able to find terrorism coverage at a reasonable cost, but many are opting not to buy it because they don't think they are at risk. On the other hand, some of the riskier operations, with real exposures, choose to do without coverage because of the cost."

"There are a number of market challenges that remain," Crerar noted. "The full set of regulations for TRIA implementation are not yet in place. We have been operating for several months under the threat of a war that has now begun, and insurers still face significant financial risk under the legislation. So it is not altogether surprising that gaps in coverage continue to exist. We will watch the marketplace closely in coming months and expect more stability and predictability in time."

The bulk of insurers' losses from the September 11, 2001 terrorist attacks were covered by reinsurance. But following the September 11 attacks, much of the reinsurance market for terrorism coverage disappeared. Last November, Congress passed TRIA to fill some of that gap by putting a federal safety net under commercial insurers for terrorist attacks for 3 years. Under TRIA, insurers are required to offer coverage for foreign terrorism and certified acts to their customers, but insurers must absorb a portion of the loss from acts of terrorism before the government backstop clicks in. The backstop does not cover domestic terrorism.

The Council's survey indicates that while insurers want to take advantage of the higher rates now being charged for commercial property/casualty insurance, they don't particularly want the added exposure to perceived terrorist targets.

"They have shown concern for offering the [terrorism] coverage because they are not being reinsured [in the existing marketplace]," said a broker from the Southwest. "However, they still want to write business and take advantage of the higher rates, so they are taking the risk net."

"When an insurer does not want the exposure, they are pricing coverage at 100 percent of the property rate so that no clients elect the coverage," said a broker from the Southeast who handles large accounts.

"If there is a terror exposure, the coverage is difficult to obtain and expensive," added another respondent.

A broker from the Northeast said location of risk is key to the terror quotes. "Risks in Manhattan can run as high as 100 percent in the outer boroughs, or out of the city, 5-10 percent of the property premium," he said.

But in other areas, the market is not that clear.

"There is great variance with no apparent logic," said a broker from the Midwest. "In some cases (for small and medium accounts), there is virtually no charge, and in others, over 100 percent. One insurer offered a local city coverage at about 105 percent, and the county in which the city is located at 2 percent."

In addition to cost and the belief that they are not vulnerable to terrorist attacks, another reason some commercial interests are giving for not buying terrorism insurance is that the coverage is not broad enough to do any good, the survey showed.

"Many larger insureds don't feel that TRIA coverage is adequate [for covering their exposures]," said a broker from the Northeast.

"Nuclear, biological agents exclusions negate coverage," said a broker from the Pacific Northwest.

The TRIA covers terrorist acts sponsored only by foreign interests, and CIAB survey respondents said many of their clients do not understand that. They said the market for domestic terrorism is mixed. Some insurers are offering coverage—and in some cases, coverage for no cost if the risk is not perceived to be high. But other insurers are excluding coverage if they can for the riskier situations.

"Companies … are not offering coverage for domestic terrorism freely," said one broker in the Northeast, "and you have to be very proactive to obtain it if the client asks for it. Availability is limited. Pricing is expensive. Limits are on the low side."

"We are finding that many insurers are not expressing concern about domestic terrorism. Foreign terrorism is the key issue for them, and they are not charging additional premium for the domestic terrorism risk. Other insurers are attempting to exclude it," reported another broker from the same region.

Although 90 percent of the brokers said they have not seen an appreciable increase in nonrenewals, and an equal number said insurers are giving customers the option to buy terrorism coverage, some high-risk properties nonetheless are finding the market tight.

"Insurers are managing their limits down to the block or refusing to quote if the hazard is a high risk," said one broker from the Northeast.

A broker from the Pacific Northwest said his nonrenewals have involved "proximity to high-rise, high visibility properties such a government buildings or in high risk areas," while another said he has experienced problems with airports, landmark buildings, and anything within a six-block radius of those entities.

Asked to detail the sort of properties, cities, and regions of the country that are emerging as high-risk in the eyes of insurers, the brokers' responses spanned the country, east to west and north to south.

Listed as problem areas were virtually every major metropolitan area including New York, San Francisco, Los Angeles, Washington, D.C. and its suburbs, Boston, Baltimore, Chicago, Atlanta, Miami, Orlando, Tampa, Philadelphia, Denver, Seattle, Dallas, Houston, Oklahoma City, and Tulsa.

Structures, businesses and locations listed as encountering problems securing terrorism coverage included some of the most highly visible properties: marine and petroleum storage terminals, petrochemical plants, nuclear plants and biotechnology firms; large office buildings and mercantile centers; trophy buildings; hospitals, government buildings, and military bases; bridges; stores, hotels, and restaurants in city centers; high-rise apartments and skyscrapers; stadiums, concert halls, and convention centers; and high-profile businesses, such as technology firms and military contractors.

Note: See other terrorism articles on

The Council of Insurance Agents & Brokers is the voice of the market leaders and the premier association for commercial insurance and employee benefits intermediaries in the United States and abroad. From its headquarters in Washington, D.C.—with programs conducted throughout the nation and world—The Council represents the largest, most productive, and most profitable of all commercial insurance agencies and brokerage firms. Only the top one percent of all agents and brokers qualify. The Council's members in more than 3,000 locations, place 80 percent—well over $90 billion—of all U.S. insurance products and services protecting business, industry, government and the public at-large, and they administer billions of dollars in employee benefits.

Since 1913, The Council of Insurance Agents + Brokers has worked in the best interests of its members, securing innovative solutions and creating new market opportunities at home and abroad. website:

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