Although the Senate bill on terrorism insurance - approved last week - is a crucial step for the industry, there are still questions as to the practical availability of the policies.

Dawnmarie Black, a senior vice president at Benfield Group, said the potential availability of terrorism insurance coverage currently in the market is approximately $400 million.

However, there are capacity issues, particularly in high-profile cities like New York where the demand for this type of insurance has skyrocketed. On the other hand, coverage is generally more available in second or third tier cities. Also, in these smaller, lower profile cities, reinsurance treaties sometimes include terrorism insurance as part of the regular property coverage, so the borrower does not have to buy a stand-alone policy.

Experts say that availability and costs of this type of insurance depends on many variables, such as the property owner's actual exposure, where the property is located, and if the property is considered high or low risk. These factors would also determine how much borrowers are going (and willing) to pay for coverage. Generally, lower-risk properties are having an easier time getting coverage.

In terms of premiums, it usually varies from month to month, and so it is hard to quote a specific price. However, costs could range anywhere from 2% for every $100 million to 15% or 20% for every $100 million. So 2% might be at the low end and 15% percent would be at the high end.

Terrorism insurance policies usually need to be renewed every year. However, with the current uncertainty regarding the issue, nobody knows what the exact terms would be upon renewal. Are insurers going to cancel their policies in the event of an attack, give 30-days notice and get off? Will they actually renew it for the following year?The rate is also an open variable, whether it is going to be the same upon renewal or whether it is going to be higher or lower. Experts say that it is hard to determine what the right rate should be.

The current uncertainty surrounding the subject of terrorism insurance, said Benfield's Black, is one reason why so many people are hoping that Congress would pass a terrorism bill.

The passage of this law would likely provide some measure of consistency to the marketplace because it will enable insurance companies to calculate what portion of risk they are exposed to, what they will be required to retain, and at what point the government funds will apply. Once that calculation is made, the insurance companies can approach the reinsurance marketplace and structure a reinsurance program that will correctly wrap their exposures, she explained.

Observers note that the insurance industry will also consider rating agencies assessments of their exposures, based on their financial positions with respect to terrorism risk.

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