With congress having failed to extend the legislation, In just one day, the Terrorism Risk Insurance Act of 2002 (TRIA) will expire.
Signed into law by President George W. Bush in 2002, the Act created a federal program for insurance claims related to acts of terrorism, and provides a “transparent system of shared public and private compensation for insured losses resulting from acts of terrorism,” according to the U.S. Department of Treasury. Since then, the legislation had been amended and extended twice. On Dec. 10, the U.S. House of Representatives overwhelmingly voted to approve a measure that would reauthorize TRIA for an additional six years. Late on Dec. 16, the Senate failed to extend the program before adjourning for the year. Issues surrounding unrelated policy riders attached to the TRIA reauthorization bill ultimately blocked the possibility of bringing the measure to a vote in the Senate, according to catastrophe modeling firm AIR Worldwide.
TRIA’s future is unclear. According to media reports, there is broad bipartisan support for re-authorization, and there is hope that re-authorization will happen in early 2015, but nothing is certain.
Meanwhile, many insurance industry executives expressed their concerns about lawmakers’ failure to pass legislation reauthorizing TRIA. “Congressional failure to approve the renewal of TRIA legislation is deeply disappointing. It was simply irresponsible for our elected officials to adjourn without reauthorizing TRIA,” ACE Group Chairman and CEO Evan G. Greenberg said in a prepared statement. “By letting TRIA lapse, they have exposed our economy and our society to the threat of severe economic uncertainty in the event of a significant act of terrorism. I sincerely hope this is the first order of business for the new Congress.”
“A major terrorist attack occurring without a federal Terrorism Risk Insurance Act (TRIA) law on the books will be far more disruptive to the U.S. economy than one where TRIA is in place,” said Dr. Robert Hartwig, president of the Insurance Information Institute and an economist. “Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real estate industries, among others.”
The terror attacks on September 11, 2001 resulted in the second highest insurance loss in U.S. history and impacted multiple commercial insurance lines of business simultaneously, according to AIR Worldwide. “Immediately following these attacks, the availability and affordability of terrorism coverage became increasingly scarce—especially for risks in terror prone areas. In 2002, Congress responded by enacting TRIA into law, putting a temporary federal backstop program in place that would allow for a public and private sharing of insured losses resulting from future acts of terrorism against the United States,” Alissa Legenza, risk consultant at AIR Worldwide, said in a statement. “No acts of terrorism that have occurred since the initial passage of TRIA have met the requirements for coverage under the program. Even so, the ongoing threat of terrorism in the United States underscores the continued need for the federal backstop program to ensure the stability of the commercial insurance market.”
TRIA’s expiration means that commercial insurers will no longer be required to offer terrorism coverage beginning January 1. AIR Worldwide says that, without a federal backstop, insurers may seek to limit underwriting for high concentrations of risks in major cities—causing terrorism insurance coverage to become unavailable or unaffordable. In addition, the workers’ compensation insurance market would be particularly vulnerable to terror attack losses, construction and real estate business sectors may be unable to obtain financing without adequate terrorism coverage in place.
The National Association of Professional Insurance Agents (PIA) put the blame on political disputes. “Disagreement won the day and politics took precedence over protecting the American people,” PIA National Executive VP and CEO Mike Becker said in a statement. "If TRIA is allowed to lapse it will not only be devastating to the American economy, it will also put our national security at risk."
Carolyn Snow, president of the non-profit industry association RIMS, agreed, saying in a statement that the program’s expiration will have many negative repercussions for commercial insurance consumers, the countless organizations they represent and the U.S. economy as a whole. “Since its inception, TRIA has stabilized the marketplace by providing adequate capacity at affordable rates. Its expiration will almost certainly cause rates to rise, placing many lending agreements in jeopardy and forcing some organizations to self-insure or simply go without.”
Industry activity to address TRIA’s expiration has already begun. According to the National Council on Compensation Insurance (NCCI), it is updating its infrastructure by preparing forms and content to remove references to “Certified Acts of Terrorism” since a terrorism certification process will no longer exist when TRIA expires, and the National Association of Insurance Commissioners (NAIC) has created a Working Group to address insurance coverage for acts of terrorism. The NAIC Working Group is updating guidance for states outlining expedited review procedures for policy forms, and state specific bulletins are available through the NAIC website at www.naic.org .
According to the NCCI, trade industry associations plan to continue lobbying efforts for TRIA reauthorization and “they are urging quick action through an expedited legislative process when the next Congress convenes January 6, 2015.”
Insurers have been publicly reaching out to customers. Risk management solutions provider AON said it is working with clients to clarify the impact on their businesses and the insurance markets as they plan for 2015 policy renewals. Starr Insurance Holdings, Inc.’s chairman and CEO Maurice R. Greenberg said in a statement that while Starr is hopeful Congress will pass an extension of TRIA when it convenes in January, the company is “ready to respond to the needs of our clients. We have capacity for stand-alone coverage for a broad array of Property, Casualty and Aviation exposures.”
