Of the many cuts included within the Obama administration’s proposed annual budget, terrorism risk insurance remains a hot button issue, as the insurance industry reacts to news that changes to the Terrorism Risk Insurance Act would include lower subsidies and higher deductibles and co-payments.  Additionally, the proposal would remove any coverage for attacks by domestic terrorists, according to the Wall Street Journal (www.wallstreetjournal.com).

This is not the first time the administration has called for TRIA changes; last year their proposals were sent to Congress, which never fully addressed the issue.  Those proposed changes were to the original TRIA agreement— the Terrorism Risk Insurance Act of 2002.  This government backstop would be triggered specifically by a catastrophic terrorist attack.  The program was modified and renewed in 2005 and then again for seven years in 2007.

In documents released yesterday, however, the White House said its proposal would eliminate “nearly $250 million in federal subsidies to insurance companies for terrorism insurance. These subsidies are no longer necessary given the robust private market for such insurance, and domestic terrorism insurance policies are now sufficiently available and affordable to meet demand. According to industry data, property/casualty insurers’ surpluses—the balances available to pay claims associated with covered terrorist attacks—are currently estimated at over $490 billion.”

Upon hearing the news, the American Insurance Association, an industry organization representing 350 property/casualty insurance companies, expressed deep disappointment at the proposal.

"Any attempt to modify this reauthorization would have a detrimental impact on the availability and affordability of terrorism risk insurance," AIA spokesman Blain Rethmeier said in a statement.

As rationale for the changes being recommended to TRIA, the budget proposal noted that, "by reducing this insurance market subsidy, the proposal would encourage the private sector to mitigate terrorism risk through other means."

The assertion that the property/casualty industry would be able to absorb additional costs in a healthier economy drew fire from another industry group, the Council of Insurance Agents & Brokers..  “We are concerned about the administration’s proposal to cut nearly $250 million in federal ‘subsidies’ to insurers for terrorism insurance,” said Nicole Allen, VP at the Council in Washington. “The administration cites a ‘robust private market’ and increased affordability and availability of coverage as reasons that these subsidies are no longer necessary, but the main reason that terrorism coverage is affordable and available is because of the TRIA program. The continued existence of TRIA has brought a good deal of certainty and stability to the marketplace, and we hope that will continue.”

 

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