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14 July 2014, Commercial property coverage premiums come down – including terrorism coverage July 29, 2015
Nancy Crotti recently wrote an illuminating article on the decrease of commercial property coverage premiums for Commercial Property Executive. This included terrorism coverage.
Crotti says the reasons for drop include:
- Fewer catastrophic weather events that destroy property
- Low property losses – meaning fewer payouts
- Hedge funds and other investors “chasing the yield” that has resulted in an influx of cash into this sector
- Increased competition, particularly from China and London
- Aggressive price drops by companies aiming to keep clients and market share
Regarding terrorism, Crotti says that the U.S. Congress passing the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA, formerly “TRIA”) in January also has driven premiums down. She says, “Congress required insurers to take on more risk, which will presumably have the effect of reducing rates or keeping them steady.”
This is interesting because terrorist attacks are up, according to the U.S. State Department’s “Country Reports on Terrorism 2014,” and its “Annex of Statistical Information Country Reports on Terrorism 2014.”
Marsh insurance provides excellent graphics for these statistics in its “2015 Terrorism Risk Insurance Report.” Terror attacks, Marsh illustrates, increased from 9,964 in 2013 to 13,463 in 2014, a 35% increase. Casualty rates from global terror attacks went from 17,891 in 2013 to 32,727 in 2014, an 81% increase.
ACE researchers report that, “68% of risk managers across Europe, the Middle East and Africa believe that terrorism is a growing concern for business, and 75% agree that recent global events are causing them to review their security and travel policies.” As a result, ACE has increased its insurance capacity “for terrorism, political violence and war risks” up to $100,000,000. Previous coverage was half that.
The Insurance Journal reports that Hiscox saw this trend much earlier and responded to it over a year ago. On 28 April 2014, it increased its terrorism coverage by $200,000,000 (“for U.S. domiciled terrorism risks.”) Hiscox reports that its policy is independent of TRIPRA and “does not require government certification of a terrorist attack and has no minimum loss requirements.”
As global terrorism continues to escalate, and as attacks on hotels and tourist venues also increase, the status quo on commercial property premiums might very well change. Attacks such as the one on the Riu Imperial Marhaba in Sousse, Tunisia, on 26 June 2015 indicate a worrying trend.
Sources and further reading
“Terrorism Risk Insurance Program Reauthorization Act of 2015,” U.S. Department of State.
“Annex of Statistical Information Country Reports on Terrorism 2014,” U.S. Department of State.
“ACE Doubles Terrorism, Political Violence and War Insurance Capacity” ACE, 9 July 2015.
“Hiscox Increases U.S. Terrorism Insurance Capacity to $200 Million,” Insurance Journal, 28 April 2014.
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