When Congress passed TRIA in 2002, its purposes included making  terrorism insurance widely available and affordable for businesses. Comprehensive Data on Terrorism Insurance Are Not Readily Available and Treasury’s Analysis to Better Understand Fiscal Exposure Has Been Limited

Comprehensive data on the terrorism risk insurance market are not  readily available. However, federal internal control standards state  that agencies should identify and obtain relevant and needed data to be  able to meet program goals. Treasury Performs Limited Analysis to Help Estimate Federal Fiscal Exposure under TRIA

Treasury has conducted limited analysis to help estimate the potential  magnitude of the federal government’s fiscal exposure under TRIA under  different scenarios of potential terrorist attacks. According to the insurers and other industry participants we  spoke to, insurers’ best practices also show that an insurer’s analysis of  the location and amount of coverage written is prudent for understanding  the financial risks of a potential terrorist attack of a specific size. Without analyzing comprehensive market data on the type and amount of  coverage provided from all insurers participating in the market, Treasury  does not have enough information to help understand potential federal  spending under various scenarios of potential terrorist attacks. According to the  responses, on average terrorism insurance premiums made up less than  2 percent of commercial property and casualty premiums, or roughly $1.7  billion in calendar year 2012 (the range for the 15 insurers was 0.7 to 3  percent). Since 2010, both take-up rates and estimated  terrorism insurance premiums have been relatively stable (see fig. TRIA Expiration or Modification Could Affect Availability of Terrorism Coverage and Federal Fiscal Exposure, but Additional Clarification of Covered Risks Is Needed

Insurers and other industry participants cited concerns about the  availability and price of terrorism coverage if TRIA expired or was  changed substantially, but some changes could reduce the government’s  fiscal exposure. For example, some insurers we interviewed said they  would stop covering terrorism risks if TRIA expired. Insurers also expressed concerns about impacts on their solvency if the  deductible or coshare percentages were increased. Such  a scenario would approximate current-dollar losses similar to those that  resulted from the September 11, 2001, terrorist attacks. The insurers’ share of losses  increases with any decrease in federal fiscal exposures. While  Treasury stated that the information available from other sources has  been sufficient for purposes of responding to TRIA’s reporting  requirements, more data and periodic assessments of the market would  help Treasury assess whether the program goals of ensuring the  continued widespread availability and affordability of terrorism risk  insurance and addressing market disruptions are being met, and advance  decision making about any potential program changes and the impact of  those program changes on the market. Treasury agreed to collect the data needed to analyze the terrorism  insurance market and to periodically assess these data for certain  purposes, such as for differences in terrorism insurance by company size,  geography, or industry sector and effects on the market for terrorism risk  insurance of changing program parameters. Appendix I: Objectives, Scope, and Methodology

The objectives of our report were to (1) evaluate the extent of available  data and the U.S. Department of the Treasury’s (Treasury) efforts in  determining the government’s exposure for the terrorism risk insurance  program, (2) describe changes in the terrorism insurance market since  2002, and (3) evaluate potential impacts of selected changes to the  Terrorism Risk Insurance Act (TRIA).
Why GAO Did This Study

Congress passed TRIA in 2002 to help ensure the availability and affordability of terrorism insurance for commercial property and casualty policyholders after the September 11, 2001, terrorist attacks. TRIA was amended and extended twice and currently will expire at the end of 2014. Under TRIA, Treasury administers a program in which the federal government and private sector share losses on commercial property and casualty policies resulting from a terrorist attack. Because the federal government will cover a portion of insured losses, the program creates fiscal exposures for the government. GAO was asked to review TRIA.
This report evaluates (1) the extent of available data on terrorism insurance and Treasury's efforts in determining federal exposure, (2) changes in the terrorism insurance market since 2002, and (3) potential impacts of selected changes to TRIA. To address these objectives, GAO analyzed insurance data, information from 15 insurers selected primarily based on size of insurer, interviewed Treasury staff and industry participants, updated prior work, and developed examples to illustrate potential fiscal exposure under TRIA.

What GAO Found

Comprehensive data on the terrorism insurance market are not readily available and Department of the Treasury (Treasury) analysis to better understand federal fiscal exposure under various scenarios of terrorist attacks has been limited. Treasury compiled some market data from industry sources, but the data are not comprehensive. Federal internal control standards state that agencies should obtain needed data and analyze risks, and industry best practices indicate that analysis of the location and amount of coverage helps understand financial risks. However, without more data and analysis, Treasury lacks the information needed to help ensure the goals of the Terrorism Risk Insurance Act (TRIA) of ensuring the availability and affordability of terrorism risk insurance and addressing market disruptions are being met and to better understand potential federal spending under different scenarios.
Available data show that terrorism insurance premiums and other market indicators are stable. For example, estimated terrorism insurance premiums have been relatively constant since 2010 (see figure). Insurers told GAO that, in 2012, terrorism insurance premiums made up on average less than 2 percent of commercial property and casualty premiums. According to industry participants, prices for terrorism coverage have declined, the percentage of businesses buying coverage seems to have leveled recently, and insurers' ability to provide it has remained constant.
Insurers and other industry participants cited concerns about the availability and price of terrorism coverage if TRIA expired or was changed substantially, but some changes could reduce federal fiscal exposure. Some insurers GAO contacted said they would stop covering terrorism if TRIA expired. Changes such as increasing the deductible or threshold for required recoupment of the government's share of losses through surcharges on all commercial policyholders could reduce federal fiscal exposure. Most insurers GAO contacted expressed concerns about solvency and ability to provide coverage if their deductible or share of losses increased. Insurers were less concerned about increases to the thresholds for government coverage to begin or to the required recoupment of the government's share of losses.

What GAO Recommends

Treasury should collect and analyze data on the terrorism insurance market to assess the market, estimate fiscal exposure under different scenarios, and analyze the impacts of changing program parameters. Treasury agreed with these recommendations.