Reinsurers and insurers have begun shedding their exposure to terrorism  risk as insurance contracts come up for renewal, leaving policyholders  increasingly exposed to losses from a terrorist attack. Reinsurers Are Withdrawing from the Market for Terrorism Insurance

Reinsurers—companies that routinely take on some of the risk that direct  primary insurers face in return for a share of the premiums—are now  unwilling to participate in terrorism coverage because of the enormous  losses they suffered after September 11th and the newly recognized  difficulties of pricing terrorism insurance. As Business Exposure to Uninsured Risks Rises, so Do the Potential Economic Consequences

While the extent of the negative economic impacts of a lack of terrorism  coverage is not yet clear, the potential for more severe economic impacts  is increasing as the level of uninsured risk climbs. If another terrorist event of  similar magnitude were to take place, all those losses would still be  incurred. These reasons  can be attributed to uncertainty and an unwillingness among lenders and  investors to accept risks that cannot yet be reasonably estimated and that  insurance companies are unable to price. The  broker could not find more terrorism coverage for these properties. The firm reported it has not been able to find an insurer that will sell  it terrorism coverage at any price. Without this loan and  others like it, the firm’s future growth potential is severely limited. NAIC  agreed with insurers that without reinsurance, insurers’ solvency could be  at risk if they were required to provide insurance for terrorism.
What GAO Found

In the closing months of last year, insurers claimed that they could not afford to continue providing coverage for potential terrorism losses. Considerable debate has taken place on what the federal government can do to keep commercial insurance companies involved in providing terrorism insurance, even without the protection that they normally receive from reinsurance. Insurance companies are withdrawing from the market because they believe that neither the frequency nor the magnitude of future terrorist losses can be estimated. Insurance coverage for terroris is disappearing, particularly for large businesses and those perceived to be at some risk. This withdrawal is happening fastest among reinsurers. Because the insurers' withdrawal has been gradual, the extent of the potential economic consequences is still unclear. What is clear is that without terrorism insurance, terrorist attacks would dramatically increase direct losses to businesses, employees, and lenders. Furthermore, the government's ability to intervene after a future terrorist attack may be hampered by its lack of claims-processing and payments systems. Even without actual terrorist attacks, some properties and businesses have been unable to find terrorism coverage at any price. These problems are likely to increase as more insurance contracts come up for renewal during the coming year. The resulting economic drag could slow economic recovery and growth.