Few organisations have used their captives to access the federal terrorism insurance backstop in the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2015 since its implementation in January, according to Marsh.
The 2015 Terrorism Risk Insurance Report revealed that of the 324 US-domiciled captives that Marsh managed in 2014, 83 (22 percent) accessed TRIPRA for property coverage, writing terrorism coverage for conventional perils, or for nuclear, biological, chemical, and radiological perils that are commonly excluded by commercial insurers.
“Organisations should work with their insurance brokers and captive solutions advisors to evaluate whether using a captive for TRIPRA could provide a more effective solution for managing terrorism exposures—particularly for higher risk areas such as for property or employee-related coverages in major cities,” said Marsh in the report.
“As US-domiciled captives are obligated under TRIPRA to offer terrorism insurance when offering TRIPRA-subject lines of insurance—such as property and general liability—organisations should carefully examine their captive structures and TRIPRA’s requirements to ensure compliance and to take best advantage of the programme.”
Terrorism insurance take-up rates dropped off toward the end of 2014, due to the anxiety stemming from TRIPRA’s unexpected expiration at the end of 2014, according to Marsh.
But US Congress quickly authorised an amended version in January 2015 and buyers of terrorism insurance have since generally experienced a favourable rate environment, a trend that is expected to continue, barring unforeseen events or market changes.
Owners of captives that provide TRIPRA-subject lines of insurance should ensure that existing policies and policy renewals reflect the requirements of the reauthorisation of TRIPRA, advised Marsh.
“Organisations with captives that buy out their trigger and co-insurance obligations should also plan for the likelihood of increased premiums starting in 2016 when the new law’s trigger and co-insurance phased increases take effect. The increases are likely to be more impactful on companies underwriting risks with Tier 1 locations.”
