Supply of coverage still outstrips demand, study finds

More than 80% of reinsurers are actively seeking new or expanded terrorism insurance business, but supply continues to outpace demand, according to a new report from reinsurance broker Guy Carpenter.

The report, ‘Terrorism: Reinsurers Standing By’, found that two-thirds of global markets now offer cover for nuclear, biological, chemical or radiological events, which Guy Carpenter described as a substantial shift in underwriting appetite compared with the period immediately following the September 11 2001 terrorist attacks. The report added that most reinsurers prefer geographically discrete opportunities.

The report said insurers and reinsurers have become increasingly sophisticated in their use of expert advice to monitor the political climate and dynamic nature of the terrorism threat.

However, despite heightened interest from reinsurers and an expanded range of underwriting options, Guy Carpenter found that purchases of standalone terrorism cover have decreased, underscoring the supply/demand imbalance.

The broker said a number of factors could result in a tighter market for terror cover, including a major terrorist attack and the Obama administration’s proposed cut in the federal backstop protection offered in the US under the Terrorism Risk Insurance Act of 2002 and the Terrorism Risk Insurance Reauthorization and Extension Act of 2007.

Guy Carpenter’s report also found that he nature of the terrorism threat is evolving. While global terrorist activity soared from 2004 to 2007 as a result of military operations in Afghanistan, Iraq and Pakistan, the firm said there has only been a handful of major terrorist attacks in developed countries since September 11 2001 as global counter-terrorism measures have limited international terrorist groups’ ability to orchestrate large-scale attacks. It added that the threat has become more localised, with attacks focusing on softer targets such as transport networks and hotels, as seen in attacks in Mumbai, Madrid and London.

Despite the shift, however, Guy Carpenter believes the threat of large-scale attacks remains. It said approximately 60 major plots have been foiled in the US and western Europe since September 11 2001.