TRIA will ‘continue to protect’ U.S. economy against major terrorist incidents, American insurers say

Associations representing both risk managers and American property & casualty insurance carriers praised the passage this week of a law extending the United States government backstop for commercial terrorism insurance coverage.

The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) was signed into law Monday by President Barack Obama. The Terrorism Risk and Insurance Act (TRIA) had expired Dec. 31, 2014 but TRIPRA extends the program to Dec. 31, 2020. TRIA essentially requires commercial property insurance in the U.S. to cover terrorism, with the federal government sharing losses under certain conditions.

TRIA “offers all organizations that do business in the U.S. financial protections to cope with the very real and unsettling devastation caused by terrorism,” Rick Roberts, president of Risk and Insurance Management Society (RIMS) Inc., stated in a press release Tuesday. RIMS had warned earlier this year that any company with “facilities, employees or components of their supply chain” would be affected if TRIA had not been renewed.

“A well-functioning private terrorism insurance marketplace has been preserved because Congress and the Administration made TRIA’s reauthorization an immediate priority,” stated Leigh Ann Pusey, president and chief executive officer of the American Insurance Association (AIA), in a press release Tuesday. “The program, which has overwhelming bipartisan support, will continue to protect our nation’s economy against major acts of terrorism.  AIA thanks Congressional leadership and the Administration for moving so quickly to reauthorize TRIA.”

AIA represents about 300 insurers writing more than $100 billion in premiums each year. All figures are in U.S. dollars.

TRIA was originally passed in 2002. After the hijacking Sept. 11, 2001 of four civilian airliners, “terrorism risk insurance quickly became either unavailable or very, very expensive and unaffordable,” U.S. Representative Gregory W. Meeks told the House last December. Inflation-adjusted insured losses resulting from the Sept. 11, 2001 attacks were about $42.9 billion, Meeks added at the time.

TRIA not been extended past the end of 2014 by the time Congress adjourned last December. The Senate had passed an earlier version of TRIPRA July 17, but that version was not put to the House of Representatives until Dec. 10, when the House amended the bill.

Last week, the House and Senate finally passed the same version of TRIPRA and sent it to President Obama, who signed it into law.

“For about three weeks following the program’s expiration, brokers, underwriters and commercial insurance consumers were faced with the stark reality of the challenge to protect their businesses and clients from potentially catastrophic and unpredictable losses incurred by an act of terror,” RIMS past-president Carolyn Snow stated in a release. “RIMS commends our leaders in Washington, D.C. for addressing this uncertainty immediately upon their 2015 return and authorizing a fair extension.”

Previously, in order to qualify for TRIA coverage, an incident would have to have been certified as a terrorist attack by three Cabinet members: The Secretary of State, Attorney General and Secretary of the Treasury, RIMS stated in a report in 2013, titled Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective.

With the passage of TRIPRA, certification as a terrorist incident still requires concurrence of both the Treasury Secretary and Attorney General, but now requires “consultation with the Secretary of Homeland Security” instead of “concurrence with the Secretary of State.”

Under TRIPRA, an act of terrorism is one that is “violent” or dangerous to human life, property or infrastructure. It applies to damage within the U.S., or outside the U.S. in the case of certain air carriers and vessels, or on the premises of a U.S. mission. It must also have been “committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.”

In order to qualify for the federal backstop, an attack would have to result in aggregate losses, to the insurance industry, of more than $100 million. That program trigger stays in place for 2015, but will be increased to $120 million in 2016, and will go up by $20 million every year until it reaches $200 million in 2020.

An earlier House of Representatives version of TRIPRA “raised the trigger for the government backstop by a whopping 500%, from $100 million to $500 million,” Representative Carolyn B. Maloney told the House Dec. 10.” This would have forced many small- and medium- sized insurers out of the market entirely and would have actually decreased the amount of terrorism insurance available in our country.”

TRIA currently has a deductible, to the private insurers, of 20% of their annual direct earned premiums from commercial P&C lines, RIMS stated in 2013. Once that deductible is exceeded, the federal government covers 85% of the insurer’s loss above the deductible, until the total losses are $100 billion.

Under TRIPRA, the federal coverage will be reduced, by a percentage point per year, until it reaches 80%.

“This legislation will gradually increase the ceiling at which the Federal Government would provide payments after a terrorist attack from $100 million to $200 million,” U.S. Democratic Senator Dianne Feinstein told Congress Jan. 8. “It will also increase the amount of money the Federal Government would recoup after any payout from 133% to 135%. These smart reforms gradually place more risk in the hands of the private market.”

The extension of TRIA “will keep the program alive and continue the remarkable growth we have seen in New York over the past several years,” Democratic Senator Chuck Schumer said when the Senate voted on the bill. “It will do the same for the skyscraper in Los Angeles, the stadium in Nebraska, the shopping center in Tennessee. So this program affects the whole country. Any large project depends on terrorism insurance.”

But some federal politicians suggest that commercial clients should eventually look to the private sector for terrorism coverage.

“I am feeling good that we are moving in the right direction, but ultimately, what we need to do is get the taxpayers out of the insurance business,” said Randy Neugebauer, chairman of the housing and insurance subcommittee of the House of Representatives’ financial services committee, during debates Dec. 10. “When you look across the board where the taxpayers are having to underwrite insurance-type losses, whether it be flood insurance or mortgage insurance, quite honestly, the government doesn’t do well at pricing those.”

Some of Neugebauer’s Republican colleagues spoke the same day in favour of TRIA.

“I have been a supporter of TRIA going back now 12, 13 years because after 9/11, we realized it was absolutely essential that TRIA be enacted for not just New York to be rebuilt, but also so that construction be allowed to go forward anywhere around the country where there could be a risk of a terrorist attack which is why Major League Baseball, the NFL, NASCAR, and virtually every large university in the country supports TRIA,” Representative Pete King said at the time.

“The Rand Institute has estimated that it protects our taxpayers by as much as $7 billion,” Representative Randy Hultgren said in December of TRIA. “TRIA also ensures the continued viability of long-term construction projects. One estimate found that for the first 14 months after the 9/11 attack, $15.5 billion of real estate projects in 17 St
ates were stalled or canceled because of continuing scarcity of terrorism insurance. So this backstop either costs very little if it is never used, or it saves taxpayers money if it is.”