U.S. Senate votes to extend terrorism insurance act another seven years

The United States Senate voted Thursday in favour of a bill that, if passed into law un-amended, would extend the Terrorism Insurance Program from the end of this year until the end of 2021 and would increase the insurance marketplace aggregate retention amount, by US$10 billion, to US$37.5 billion. 

Risk and Insurance Management Society (RIMS) Inc. called Thursday on both the Senate and House of Representatives  “to come together and devise a final version,” of a bill extending the Terrorism Risk and Insurance Act (TRIA), scheduled to expire Dec. 31, 2014.

If TRIA expires, RIMS warns that any company with “facilities, employees or components of their supply chain” in the U.S. would be affected.

On July 17, 93 of America’s 100 senators voted in favour of the Terrorism Risk Insurance Program Reauthorization Act of 2014.

A separate bill proposing to extend the U.S. government terrorism coverage program to 2019 was tabled June 17 in the House of Representatives but has yet to be put before the full house for a vote.

TRIA was signed into law 12 years ago in the wake of massive losses arising from the Sept. 11, 2001 hijackings of four passenger airplanes. TRIA requires insurers to cover losses in incidents which are “certified” by the U.S. government as terrorist acts and requires the U.S. government to pay a portion of a carrier’s insured losses that exceed the carrier’s deductible.

If passed into law, the Senate’s Terrorism Risk Insurance Program Reauthorization Act  “will minimize the disruptions, maintain the availability and affordability of terrorism insurance for consumers, and protect taxpayers,” stated Nat Wienecke, senior vice president of federal government relations of the Property Casualty Insurers Association of America, in a press release July 17.

In a separate release July 17, RIMS stated it is “encouraged” by the Senate vote.

“With the House and the Senate both in agreement that the need for a reauthorized TRIA bill is a necessity, it’s time for the two groups to come together and devise a final version,” RIMS President Carolyn Snow stated in the release.

In order to get passed into law, a bill approved by one house of congress must first be sent to the other house. A conference comprised of members of both houses would then have to work out any differences between the House and Senate versions of the bill, before going to the President, who could either veto or sign the final version into law.

“A common misperception is that TRIA only impacts organizations here in the United States,” Snow stated July 17. “Any global business that has facilities, employees or components of their supply chain here in the U.S. will be affected should TRIA expire. This is a worldwide insurance issue.”

In the House of Representatives, Texas congressman Randy Neugebauer introduced June 17 the TRIA Reform Act of 2014. If passed into law, that bill would extend TRIA to 2019. It also “phases in a new program trigger” for events other than chemical, radiological, biological and nuclear attacks “from US$100 million to US$500 million by 2019,” Neugebauer stated in a release. “It also decreases the federal share of insurers’ losses from 85% to 80% and enhances the Program’s taxpayer repayment requirements.”

Currently, in order to trigger coverage under TRIA, a terrorist act would have to result in losses exceeding US$5 million in the U.S. and be certified as a terrorist act by the Secretary of State, the Attorney General and Secretary of the Treasury, RIMS noted in a 2013 paper, dubbed Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective.

The attack would also have to result in aggregate losses to the insurance industry of more than US$100 million, RIMS stated said at the time. RIMS noted there is a deductible, to the private insurers, of 20% of their annual direct earned premiums from commercial P&C lines. Once that deductible is exceeded, the federal government covers 85% of the insurer’s loss above the deductible, until the total losses are US$100 billion.

The bill that the Senate passed July 17 proposes to reduce the federal share of the compensation for insured losses of an insurer during each program year — after the bill is passed into law — by 1% “until that share equals 80% of that portion of the amount of such insured losses that exceeds the applicable insurer deductible for such Program year.”

The Senate also proposed to increase the insurance marketplace aggregate retention amount, currently at US$27.5 billion, by US$2 billion per calendar year until the industry’s retention is US$37.5 billion.