Research

Insurance Marketplace Realities 2019 — Terrorism and political violence

November 6, 2018

Rate predictions

  Trend Range
Terrorism and political violence Neutral Flat

Key takeaway

As pricing and capacity have stabilized after a period of price declines, insurers are increasingly trying to differentiate and innovate, bringing new benefits and challenges to insurance buyers.

While ISIS is on its heels militarily in Syria and Iraq, its ideology and fighters returning to their homelands will continue to pose a critical global threat.

  • Overall, global incidents of terrorism have continued to decline, but security experts insist the threat persists and terrorist groups will focus on sophisticated attacks.

Rates are mostly flat, with reductions possible in certain cases.

  • In countries or regions where security is deteriorating, rates are increasing in line with heightened risk. When carriers make capacity available it is snatched up quickly.
  • In locations of heavily aggregated risk, New York City for example, the decline in rates in recent years has limited carrier appetite and diminished capacity. Demand for coverage in these areas, while steady, has yet to exert sufficient upward rate pressure.

Most insurers are maintaining or even increasing their capacity and appetite, as well as expanding their product offerings.

  • There has been a notable increase in market capacity for nuclear, chemical, biological and radiological (NCBR) terrorism risks.
  • Market capacity stands at approximately $4 billion.
  • Products responding to active shooter or malicious attack events have been available for several years, but growing interest in this area is stimulating marketplace creativity.
  • Despite M&A activity among carriers, we have seen no impact on capacity thus far.

In June of this year, the U.S. Treasury issued a review of the Terrorism Risk Insurance Program (TRIA).

  • Estimated total earned premium from 2003 – 2017 is approximately $37.6 billion (excluding captives) and $45 billion including captives.
  • The Department of Treasury reiterates that a cyber incident can constitute a certified act of terrorism under TRIA.
  • The report confirms that the 9/11 terrorist attacks resulted in approximately $44 billion in loss.
  • With TRIA set to expire at the end of 2020, the terrorism insurance sector is in something of a wait-and-see mode. We hope — and expect — that Congress will address the question of reauthorizing the federal backstop for terrorism insurers in a timely manner and avoid the confusion that ensued in 2014 when the law was allowed to lapse.