Transcript Insuring Terrorism Risk - 2015 and Beyond

TERRORISM RISK 2015
AND BEYOND
Wendy Peters
Senior Vice President
Terrorism Practice Group Willis North America
TERRORISM RISK TODAY
The Terrorism Risk:
 Is terrorism risk still an issue?
 How is terrorism currently insured?
New market dynamics & capacity.
The Terrorism Risk Insurance
Program Reauthorization Act of 2014:
 News from Capitol Hill. Support or
inaction? The latest proposals.
 The consequences of indecision –
options available to ensure optimal
coverage.
Action Items for 2015
TERRORISM TODAY – THE NEW THREATS
ISIS
 ISIS and ISIL:Islamic State of Iraq and Syria
(ISIS /or Islamic State of Iraq and the
Levant
 Estimated 50,000 in Syria / 30,000 in Iraq
 Estimated $2 billion in net assets by mid
2014 private donors, robbing banks, etc.
 Produces raw crude and sells electric
power in Syria
 Sophisticated in use of social media;
cunning, brutal, well-funded.
 ISIS is believe to have established foothold
in Mexico in cooperation with drug cartels.
Is it still a threat in the US?
 Over 50 potentially significant attacks have been identified & prevented in the US
since 9/11
TERRORISM IN THE US
•
At least 19 publically known terrorist
attacks against the US have been
foiled since 9/11.
•
While not of the scale of 9/11, the
fear of home grown terrorists
increases
•
Motives can vary from revenge for
war on Islam, to poverty, to animal
rights, or governmental policy.
•
Over 100 US citizens have been
identified as ISIS recruits.
•
New tactics: Cyber terrorism,
electro- magnetic pulse, biological
agents ( e.g. ebola) .
•
Attacks on the power grid in 2014 in
California.
INSURING TERRORISM RISK: MARKET DYNAMICS
 Terrorism was not a defined peril until 9/11. Now considered an “unmodelable” risk.
 TRIA is due to expire in December of 2014 without Congressional action.
 The stand alone property and casualty terrorism insurance market has an estimated
capacity at $3.0 billion per risk written by over 30 US and UK markets.
 Captives have provided broadened access to otherwise uninsurable perils and limits
 Percentage of companies purchasing
terrorism insurance for either
property or casualty exposures –
either embedded or stand alone
insurance: 60 -70%.
 Major Metro area insureds face
greatest challenges in obtaining
sufficient coverage, but all insureds
will be impacted by TRIPRA changes.
TRIA 2014: THE WORD FROM CAPITOL HILL:
July 17th, U.S. Senate passed by a vote of 93 - 4 extension of TRIA
Changes Proposed in the Senate Legislation:
•
Incrementally raises the coinsurance contribution of insurers
from the current 15% of loss to 20% by 2019
•
Changes recoupment from $27.5 billion to $37.5 billion.
•
Extends the program for a further 7 years
•
No change to program trigger of $100 million
•
No change to NBCR coverage
THE WORD FROM CAPITOL HILL:
Changes to TRIA in the House Proposal:
•
Incrementally raises the coinsurance contribution of insurers
from the current 15% of loss to 20% by 2019
•
Changes recoupment from 133% to 150% of losses paid.
•
Extends the program for a further 5 years only
•
Raises trigger incrementally to $500 million. Maintains
$100 million trigger for NBCR.
•
Allows for “smaller companies” to opt out less than $300 million surplus?
DAYS LEFT IN CURRENT
CONGRESSIONAL CALENDAR:
6
( less
CURRENT STATE OF TRIA REAUTHORIZATION
Congress
House of
Representatives
H.R. 4871 TRIA
Reform Act of 2014
Sponsor Randy
Neugebauer (R-TX)
House Committee on
Financial Services
Chairman Jeb
Hensarling (R-Texas
Bill introduced into
House of
Representatives
Senate
A House-Senate
conference committee
writes a compromise bill
that goes back to both
houses
Referred to House
committee and subcommittee
Bill introduced into
Senate
Referred to Senate
committee and
subcommittee
S.2244 Terrorism
Risk Insurance
Program
Reauthorization
Act of 2014
Sponsor Charles
"Chuck"
Schumer(D-NY)
Senate
Committee on
Banking, Housing
and Urban Affairs
Chairman Tim
Johnson (D-SD)
House and Senate
vote on final
passage;approved bill is
sent to the President
Reported by
Committee on
June 20, 2014
Chairman Hensarling
will not move the bill
past committee
stage as he does
not believe there
are enough votes
for House passage
Voted on by full
committee
Voted on by full
committee
Reported by
Committee on
June 3, 2014
House debates and
votes on passage
Senate debates
and votes on
passage
Passed on
July 17, 2014
President can sign bill
into law or veto it
TRIA
reauthorization
bill(s)
THE POSSIBLE CONSEQUENCES OF NON RENEWAL
 If TRIA is allowed to expire, insurers are no longer mandated to offer
terrorism insurance. Losing that “subsidy”, insurers will be inclined to
raise rates.
 Mortgage lender requirements may not be met
 Captives will be defunded.
 Stand alone terrorism market may offer only secure capacity for the
medium term risk. May be insufficient in Tier One areas.
 No exclusion permitted for fire following terrorism in 14 states. Will impact
availability of property insurance.
 No exclusion permitted for workers compensation – will force carriers out
of the market.
ACTION PLAN FOR 2015
 Confirm with existing insurers position
regardless of TRIA extension.
 Evaluate placing stand alone capacity to fill
gaps or drop down where carriers cannot
confirm extension post 12/2014.
 Consider Risk Modeling – Do I understand
the impact of attack to my portfolio?
 Not only a property issue. Casualty, Comp,
Environmental.. all could have sunset
clauses.
 Secure sufficient capacity to reinsure
captives, if currently deployed, in the event
TRIA backstop eliminated.