Industry Faces Familiar TRIA Fight Against Skeptical Congress

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A familiar tune was heard at yesterday’s hearing to discuss the Terrorism Risk Insurance Act (TRIA) when House Financial Services Chairman Jeb Hensarling (R-Tex.) said that he is skeptical of reauthorization.

This is the third time TRIA, which provides a federal backstop to help carriers provide coverage for unpredictable acts of terrorism and expires at the end of the year, has been up for reauthorization since it was enacted in November 2002. And, each of the first two times, members of Congress expressed uncertainty until the last minute.

“It’s very much a repeat of history. I was leading the TRIA renewal fight in 2005 when I was the superintendent in New York, and this is very similar,” says Howard Mills, Deloitte, who explains that, as with past renewal conversations, arguments claiming the program is a government handout persist. “Proponents of TRIA continue to explain correctly that TRIA doesn’t cost the taxpayers anything. It’s not like there’s a big TRIA office with a lot of staff; it’s basically a statement that there will be a backstop under certain conditions if a terrorist even occurs.”

Mills describes it as a guarantee, spurred by the utter unpredictability of terrorism coverage, that should the worst happen, the government would be there to help insurers. If the government does not make that commit to that guarantee by the end of the year, insurers will either cut coverages or raise prices significantly to compensate for unforeseeable risks. Even the prospect of this, Mills says, is already hurting the economy.

“Construction needs to have terrorism coverage to commence, which means that developers, builders and real estate owners need to know that they can get the coverage. So this doubt whether TRIA will be renewed is already impacting major projects. And the longer this drags on — it’s not unreasonable to expect that some projects just won’t happen.”

For such reasons, the industry stands firmly united on the issue. Industry groups and carriers have been expressing the need for a renewal of the program for nearly six months. This hearing was a first chance for many of these parties to present that united front to a skeptical Congress, including Swiss Re, Marsh & McLennan Companies and the Property Casualty Insurers Association of America (PCI).

In April, Marsh surveyed more than 2,500 clients, and found that demand for terrorism risk insurance remains strong and that the TRIA program plays a major part in the availability and affordability of coverage. According to the report, 62 percent of Marsh’s clients purchased property terrorism coverage backed by TRIA in 2012.

"Our clients across the United States — including real estate developers, media companies, health care organizations and educational institutions — need and want terrorism coverage and would be less likely to get it without TRIA," said Peter Beshar, EVP and General Counsel of Marsh, who also testified before the Financial Services committee.

Marsh offered three recommendations for refinement of the program including specific clarification that coverage is provided by TRIA for all forms of terrorism if coverage is afforded on the primary policy; modernization to reflect new terrorist threats, in particular, cyber terrorism; and the establishment of a 90-day time period for determining whether or not an act of terrorism is covered by TRIA.

On Wednesday, Marsh representatives shared their views on TRIA at a meeting of the Federal Advisory Committee on Insurance (FACI), with Director of the Federal Insurance Office Michael McRaith present.

In addressing FACI, Marsh said, “The continuation of TRIA is essential,” and stressed that TRIA affects the state-regulated workers’ compensation market, especially in the areas of pricing and capacity.

PCI submitted a statement that reiterated Mills’ point that the government only stands to gain help in fighting potential losses through reauthorization, saying, “One of TRIA’s best attributes is that it keeps commercial insurers participating in the terrorism insurance market, thus protecting taxpayers from most terrorism losses.”

Eric Smith, Swiss Re America’s president and CEO, testified that until insurers, reinsurers and the financial markets understand terrorism risk better, U.S. businesses will face challenges getting the commercial insurance coverage they need.

“We've all worked hard at building the TRIA public/private partnership, and we're thankful that the program hasn't been tested,” said Smith. “It's the elusive nature of terrorism that underscores the continuing need for the partnership.”

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