BOSTON--The American Insurance Association (AIA) is pushing Congress for a two-year extension of the Terrorism Risk Insurance Act (TRIA), an extension that AIA says will help avoid destabilizing the insurance market and the economy, and will enable policymakers to develop a more permanent solution for managing our nation's economic exposure to catastrophic terrorism.
AIA states that TRIA is an essential component of the nation's financial recovery system in the event of catastrophic terror attacks on American civilian targets.
Bipartisan legislation is pending in the Senate, and two bills are pending in the House; nearly 200 representatives have signed a letter in favor of extension. TRIA protects virtually every sector of our economy. Transportation, energy, real estate, construction, lodging, health care, hospitality, education, sports/entertainment, financial institutions, public entities, and manufacturing are among the industries and entities relying on TRIA.
TRIA was enacted with bipartisan support in 2002 because hundreds of thousands of jobs and billions of dollars in transactions were at stake. The private insurance industry paid nearly $35 billion in 9/11-related losses, without a single dollar of federal funding. But the September 11 attacks fundamentally altered the way insurers look at terrorism; it now looks like war -- an uninsurable risk.
The terrorism insurance market dried up. Many types of financial transactions could not proceed; construction workers and other Americans suddenly became secondary economic victims of terrorism.
TRIA has stabilized the commercial insurance marketplace. In exchange for the federal government sharing the financial risk of future attacks, insurers must offer terrorism coverage on commercial policies written during the program, and must retain a large, escalating amount of losses from future attacks.
Because the Treasury Department decided recently that insurers must make terrorism coverage available during the final year of the three-year program, there is a mismatch between TRIA's expiration date (12/31/05) and commercial insurance policies written in the next few months. Annual policies written after January 1, 2005, extend beyond the life of TRIA. Insurers and policyholders already are starting to negotiate policies that will begin January 2005 and extend into 2006. Insurers will have no choice but to evaluate every policyholder considered for coverage during this period as if TRIA does not exist for part of the policy period.
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