The US Terrorism Risk Insurance Act hasn’t encouraged the insurance market to broadly offer terrorism insurance coverage at prices that most insurance buyers would view as reasonable, according to Moody’s Investors Service.

While Moody’s says prices have eased slightly since the September 11 “dislocation”, a survey of US commercial lines insurers found that few US insurers are offering coverage of domestic acts of terrorism or selling stand-alone terrorism policies. Nor is any insurer offering broad coverage of nuclear, biological or chemical terrorism.

“Overall, the Act does not yet seem to have increased the availability of terrorism insurance coverage at prices that most buyers would view as reasonable,” Moody’s analyst James Bartie said in New York. The cost of terrorism cover has remained high because pricing is “the sole underwriting tool available to help insurers manage their aggregate exposures before renewals occur”.

“We believe some insurers have quoted extremely high prices for some types of risk to discourage policyholders from buying terrorism coverage in cities considered highly vulnerable to future attacks,” he said.

Moody’s anticipates that terrorism risk will eventually be underwritten in much the same way that natural catastrophe risks are now covered, using many of the same tools. These include individual risk selection and pricing, aggregate exposure management and possibly even certain coverage restrictions.