Purchases of terrorism insurance rose in the fourth quarter of 2003 and prices declined, according to a report by a major U.S. insurance broker. The report, released April 26 by Marsh Inc., New York City, says that 32.7% of the 2,400 Marsh client companies sampled bought terrorism insurance in last year's final quarter, up from 26% in the third quarter and 23.5% in the second quarter.
The study also says the average rate for such coverage fell 42% in the fourth quarter, to 0.0045% of total insured value, compared with second-quarter prices. Marsh, which says it's the world's largest insurance broker, says the increased demand for terrorism coverage may be linked partly to the price decline.
Firms in the energy industry had the highest terrorism insurance purchase rate, at 40.5% of the firms. Real estate ranked sixth, at 30.2%, and construction ranked last among the 15 industry categories, with a 12.2% purchase rate.
The report's release comes as the insurance industry is pushing to extend the federal "backstop" for private terrorism insurance coverage provided under the 2002 Terrorism Risk Insurance Act. The law is to expire on Dec. 31, 2005, and insurance groups want Congress to renew the statute long before that date.
But the industry sees a more pressing deadline. The terrorism insurance measure's mandate that insurers make terrorism coverage available runs out at the end of 2004 unless the Treasury Dept. decides by Sept. 1 of this year to extend that provision. If Treasury does act, the availability mandate would be in effect through December 2005.
Some in Congress are taking up the insurers' cause. House Financial Services Committee Chairman Michael Oxley (R-Ohio) and two other senior panel members on April 23 wrote Treasury Secretary John Snow, urging him to extend the availability provision. They said, "An extension will ensure that terrorism coverage is widely available while Treasury continues its good work and while private market solutions are still being developed."
Two Financial Services subcommittees have scheduled a joint hearing on the terrorism insurance legislation on April 28.