The extension of the Terrorism Risk Insurance Act was met with lukewarm enthusiasm by the insurance industry, for good reason. However, it was likely the best that could be obtained given the strong political desire on the part of Congress and the Administration to mitigate the Feds’ risk.
There have been significant changes to TRIA, which will be in place through the end of 2007. Here are a couple of the key provisions and the impact of same.
1. In 2007 the insurance industry’s “deductible” will increase to 20% of direct earned premium from 17.5%. The result – more risk at the insurer level.
2. The share of the risk that the government will take will also decrease from 90% to 85%.
Modeling done by Risk Management Solutions indicates that the World Trade Center attacks, which produced a loss of $32.5 billion, would result in minimal funding through TRIA if they occurred under the 2007 provisions.
The “good news” is RMS predicts there is less than 10% likelihood that any one attack would produce a loss of this size.
What does this mean for you?
There are two components to claims costs – frequency and severity. While all of us fervently hope that no attacks occur, the realists among us are more
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