But if these stakeholders were hoping for a definitive answer, the report does not deliver. It notes, for instance, that the insurance sector has improved the methods to support terrorism risk modeling and has made great strides in measuring and managing risk accumulations. The report goes on to lend credence to insurers' concerns--namely that the modeling strategies are based relies largely on analysis of terrorist behavior. "Given the uncertainty of terrorism in general and, in particular, the uncertainty associated with these modeling efforts, insurers appear to have limited confidence in these models for evaluating their risk exposures," the report said.
Another issue the report tackles is the demand for terrorism insurance, which has been lower than expected, given the reasonable rates in the market. This is another challenge for insurers, who are not likely to develop, price and reserve the necessary capital to support such policies without a corresponding demand for them.
"It is unclear why approximately 40% of all policyholders do not purchase coverage, although the Treasury's 2005 study and others have found that the primary reasons were price and assessment of their individual risk to terrorist attack," the report said.
The combination of these two factors--the difficulty of predicting a terrorist event and the low demand for policies--lead the report's authors to conclude that predicting the potential degree of long-term development of the terrorism risk insurance market is still "somewhat difficult."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
