Insurers may lose terrorist protection

The U.S. Treasury Department recently released a report on the state of terrorism suggesting the Terrorism Risk Insurance Act (TRIA) should not be extended in its present form.
Treasury secretary John Snow says, in a letter concurrent with the reports recent release, that TRIA may hinder the further development of the insurance market by crowding out innovation and capacity building if left in its current state.
TRIA’s original purpose in 2002 was as a temporary program scheduled to end on Dec. 31, 2005, and as such it does not facilitate continued use. The act was implemented as a federal backstop for insurers paying losses from future catastrophic terrorist attacks.
Snow says the report shows that TRIA has achieved its goals of supporting the industry during a transitional period and stabilizing the private insurance market.
Snow says the Bush administration plans to accept a temporary extension of the program if certain conditions are met. Some of these conditions are: increasing the size of the terrorist event needed to trigger TRIA coverage of $500 million; the prerequisite of individual insurers to pay higher deductibles; and, the elimination of a number of lines of coverage such as, commercial automobile and general liability, from TRIA’s protection.
Risk managers, insurers and brokers support the extension of TRIA, because the private market would lack the capacity to meet the demand of terrorism insurance without the TRIA backstop. However, the Consumer Federation of America urges TRIA cease, as they consider it little more than a “bailout” for the insurance industry.
“Current litigation rules would allow unscrupulous trial lawyers to profit from a terrorist attack and would expose the American taxpayer to excessive and inappropriate costs,” Snow says. “The Administration supports reasonable reforms to ensure that injured plaintiffs can recover against negligent defendants, but that no person is able to exploit the litigation system.”