Insurers must focus on internal risk management rather than depend on the Terrorism Risk Insurance Act (TRIA), which is set to expire in two years, to mitigate losses from a terrorist attack, according to Risk Management Solutions (RMS). Though the federal government is prepared to cover 90 percent of industry losses above 17.5 percent of covered lines premiums, or about $30 billion, under the TRIA agreement, according to RMS, there is less than a 10 percent chance that losses from a single incident would surpass that figure. "Insurers are retaining a significant portion of loss that incurs from terrorism," says Arlene Suda, director of product development in the emerging risk model group at RMS ( Newark, Calif.).
To manage risk associated with potential losses resulting from terrorism, insurers should focus on integrating data, optimizing business intelligence and employing predictive models, stresses Larry Danielson, principal at Deloitte Consulting (New York). "Most insurance companies are viewing this risk as covered by reinsurance, but they have to get their arms around that information to make more-informed decisions about the risks they are willing to take on," he says.
Under TRIA, neither the government nor insurers would be responsible for losses exceeding $100 billion.