Despite an ever-changing terrorism risk insurance market, businesses from every industry sector continue to purchase coverage - more than 60 percent of organizations surveyed by Marsh bought coverage in 2009.

Terrorism insurance and associated risk management strategies are dynamic and complex issues, with many interdependent factors contributing to managing and risk. Foreign relations, the effectiveness of homeland defense, and the ambiguous nature of the risk make terrorism losses extremely challenging to predict and quantify. It is difficult for insurers to effectively price and reserve capacity for their potential exposure to catastrophic terrorism losses.

U.S. insurers are backed by the commitment of the United States federal government to provide reinsurance relief to help them manage the ongoing risk of terrorism. In 2007, President Bush signed the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), extending the program through December 31, 2014. The original legislation - the Terrorism Risk Insurance Act of 2002 (TRIA) - was a direct response to the attacks of September 11, 2001, and part of a concerted effort to keep the American economy strong.

Like the original legislation, the two extensions were intended as short-term solutions. Congress passed TRIPRA in part because the insurance industry had not amassed enough capital to insure catastrophic terrorism losses without a federal backstop.

Since the original legislation in 2002, the standalone terrorism market has grown and evolved and now offers a number of viable program solutions for companies in the United States and abroad to mitigate their terrorism risks.

On February 1, 2010, the Obama Administration released its proposed 2011 budget, which would reduce federal support for TRIPRA beginning 2011 and again in 2013. This was originally presented by the U.S. Office of Management and Budget in its report "Terminations, Reductions, and Savings, Budget of the U.S. Government, Fiscal Year 2010."

The 2011 budget generally proposes reduced federal intervention in TRIPRA, and specifically identifies:

• increasing the deductible to be paid by insurers;
• increasing the insurer co-participation;
• increasing the event trigger;
• removing coverage for act of domestic terrorism; and
• reducing the recoupment percentage from 133 percent to 100 percent

Although this proposal simply reasserts the position detailed in the first report of efforts by the Obama Administration to reduce government spending, it holds few specifics on how changing TRIPRA would do so. Marsh's terrorism experts have had discussions with policy makers who have indicated there is very little appetite for these changes to be enacted by Congress.

Marsh's Property Specialized Risk Group will keep our clients informed of further developments and their potential impact on terrorism insurance programs.

This publication, Marsh's annual terrorism risk report, is designed to help companies address terrorism risk issues, despite uncertainties. It is part of Marsh's ongoing effort to inform clients of notable developments in the terrorism insurance marketplace - including cost, demand, and gaps in coverage. The report looks at:

• key issues under TRIA;
• property terrorism insurance purchasing in 2009;
• the standalone property terrorism insurance market;
• terrorism issues in workers' compensation and liability insurance;
• the effect of TRIA and international terrorism on the insurance and reinsurance markets;
• insurance for terrorism exposures placed with captives; and
• political violence, international terrorism insurance, and global terrorism pools/schemes.

Through benchmarking and by staying aware of important developments, risk managers and other key executives can help their companies prepare strategies to manage the shifting realities of terrorism risk. Marsh remains committed to helping our clients develop robust, comprehensive strategies to manage this risk. 

To read the executive summary, click here.

To read the rest of the report, click here.