Nearly half of large and mid-sized U.S. businesses bought terrorism insurance in 2004, up dramatically from only 27 percent, on average, in 2003, according to a new analysis of client data by Marsh Inc., one of the world’s largest risk and insurance services firms.
The findings echo those in a December report by Aon, the global insurance brokerage, which found 57 percent of companies studied had bought terror coverage, up from 24 percent.
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The federal Terrorism Risk Insurance Act (TRIA), set to expire Dec. 31, requires property and casualty carriers to offer terrorism coverage – which most policies have excluded since the Sept. 11 attacks – as an optional add-on for all their customers, with federal backing.
Before President Bush signed TRIA into law in November 2002, companies seeking terrorism coverage had to pay as much as double the premium, said Les Hayward, senior vice president of Marsh’s office in Providence. But TRIA brought rates down “significantly,” he said, to about one-tenth the original premiums, so it became a more viable option for businesses. Rates held steady between 2003 and 2004, Marsh found, but customer interest in terrorism insurance rose sharply.
Overall, 49 percent of 2,371 business and government entities whose insurance purchases Marsh analyzed bought terrorism coverage, the report shows. But large firms, firms in the Northeast, and specific industrial sectors were particularly likely to buy the coverage.
Among firms with total insured values more than $1 billion, 53 percent bought terror insurance, Marsh found, compared with 57 percent of those with values between $500 million and $1 billion, and 50 percent for those between $100 million and $500 million. About 35 percent of clients with insured values less than $100 million bought terror insurance.
Take-up rates were particularly high among financial institutions, real estate firms and health care facilities, Marsh found, with take-up rates more than 60 percent for each.
And not surprisingly, given the upheaval brought on Boston by last year’s Democratic National Convention, the Hub had the highest terrorism insurance take-up rate among 10 metropolitan areas analyzed, Marsh found, 69 percent.
Next in the rankings were Washington, D.C. (60 percent), Chicago (58 percent), Dallas (57 percent) and New York City (54 percent). By contrast, only 39 percent of Los Angeles businesses and 37 percent in San Francisco bought terror coverage, and only 23 percent in Houston, despite what many view as elevated risks associated with the energy industry.
Hayward had no figures for Providence or Rhode Island specifically, but he said he’d expect a smaller share of local companies to have terrorism coverage than their Boston counterparts.
The Washington Trust Company, Brown University and Lifespan, the health care network, said they have the coverage, when asked by Providence Business News. General Dynamics Electric Boat declined to comment.
William K. Austin, a principal of Austin & Stanovich Risk Managers in Providence, which advises companies but does not sell insurance, said Marsh’s numbers are probably “somewhat skewed” by the fact that its clientele includes many large corporations, which as the Marsh figures themselves show, are more likely to buy terror coverage.
But even for smaller firms, Austin said, terrorism coverage is so affordable now that, in many cases, he’d recommend getting it – even for companies that aren’t likely to be targeted.
You don’t have to be in the Prudential Tower in Boston to be affected by a potential attack, Austin noted: “You could be the small boutique hotel across the street,” just close enough to be in a blast zone. Your street could be shut down, or you might just not be able to deliver your product, or reach your customers, because of an event nowhere near you.
“That’s something a lot of companies learned after 9-11 – they may not have suffered any direct losses, but the business interruption was huge,” Austin said. Each company has to make its own judgment call, he said: “I don’t think there’s an easy answer.”
And while Marsh’s report focuses on property terrorism insurance, Austin noted that some customers, such as hotels and other gathering places, may see a bigger need for terror coverage in their liability policies – for the event that something happens and they’re sued for a breach of security and resulting injuries and deaths.
For many others, Austin said, terrorism insurance might not be a voluntary choice, but it’s required by lenders or by the terms of their leases. “All-risk” coverage is the standard, he said, so with most policies excluding terrorism, you have to buy the coverage to comply.
But even for those who do buy terror insurance, there are cheaper and more expensive options.
TRIA only requires carriers to offer coverage for acts by foreigners on U.S. territory that are “certified” by the U.S. Treasury, the Secretary of State and the U.S. Attorney General. But some carriers are also offering “non-certified” coverage, which includes terrorism risks outside the United States as well as acts by domestic terrorists, such as the Oklahoma City bombing.
In 2004, 70 percent of companies that bought property terrorism insurance got a combination of TRIA and non-certified coverage, according to Marsh.
A third option, which is all most buyers could get before TRIA, is “stand-alone” terrorism insurance, which is written separately from regular property and casualty policies. The Marsh report says capacity in that market is “relatively stable, though limited,” with availability varying by location and the insurers’ accumulated exposure.
