A new GAO report finds TRIA severely lacking in the face of potential mega-events.

The private sector insurance market is unable to insure against certain unconventional terrorist attacks, a new report from the US Government Accountability Office (GAO) concludes. The report, produced in connection with last year's extension of TRIA by Congress, found that nuclear, biological, chemical and radiological (NBCR) attacks failed to meet the standards for insurability ie they had not occurred a sufficient amount of times to accurately predict future losses; are not measurable in terms of dollar value; do not occur by chance; and will invariably result in catastrophic losses for the insurer.

The report suggested that TRIA, or any other future federal backstop, could only deal with a NBCR terror risk and not the wider, more conventional risk of terrorism threats, which has met with some resistance. “The real issue is terrorism itself and its uninsurability, not the specific weapon a terrorist may decide to use,” said Ben McKay, Property Casualty Insurers Association of America senior vice president of federal affairs.

But as Dr James Valverde, director of economics and risk management at the Insurance Information Institute, points out, there is a much more troubling issue to consider. “In the case of these mega-events, there really isn't a scenario that won't easily surpass the $100bn threshold.

With the capacity of TRIA-backed terrorism risk at around $150bn, the industry can probably deal with one event. But what happens if these NBCR events start occurring regularly? TRIA has not given insurers the confidence to deal with sustained NBCR attacks and if the private market can be wiped out by a single event, what does this mean for the future sustainability of the industry?”

GAO's study also pointed out that while workers' compensation, life and health insurers did not exclude NBCR risks from their coverage, there was enough variation in exposure across lines of insurance that other insurers such as property casualty could exclude it. In addition, it notes that the currently unquantifiable devastation and severity of a NBCR attack alone could reduce the risk appetite of some insurers.