PWG Releases Insurance Analysis

Created after the stock market crash in 1987, the PWG is chaired by the Treasury Secretary and counts as its members the chairmen of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The PWG report was required as part of the legislation to extend the federal backstop for terrorism insurance, formally known as the Terrorism Risk Insurance Extension Act of 2005. The PWG failed to endorse an extension of the current program, due to expire at the end of 2007. The PWG suggested that "the presence of subsidized federal reinsurance through TRIA appears to negatively affect the emergence of private reinsurance capacity because it dilutes the demand for private sector reinsurance." The Bush Administration’s position has been that the existence of a federal backstop hinders private sector participation and that TRIA is a temporary program.

The PWG agreed, however, with a recent study from the Government Accountability Office that said virtually no coverage exists for nuclear, chemical, biological and radiological (NCBR) risks. "Given the general reluctance of insurance companies to provide coverage for these types of risks, there may be little potential for future market development," the report acknowledged. Excluding NCBR, the report in general found that terrorism risk insurance prices have dropped and more companies are buying insurance since Sept. 11.

"The take-up rate - or the percentage of companies buying terrorism coverage - has reportedly increased from 27% in 2003 to 58% in 2005, while the cost of coverage has generally fallen to roughly 3-5% of total property insurance costs," according to the report.

ICSC and other business stakeholders in the Coalition to Insure Against Terrorism (CIAT) will be working with the 110th Congress and the Administration to find a long-term solution to terrorism insurance.