March 18, 2015 by Canadian Underwriter
The United States government should decide within 60 to 90 days of an incident whether losses from that incident qualify for coverage under the Terrorism Risk and Insurance Act (TRIA), which provides for a government backstop for commercial property coverage, Risk and Insurance Management Society Inc. (RIMS) contends.
“We suggest a 60-90 day deadline from the date of an event for the Secretary of Treasury to make a formal decision on certification” of an incident as a terrorist attack, for the purpose of TRIA coverage, RIMS president Rick Roberts wrote in a letter made public Tuesday. “The (Treasury) Secretary could then request a 30-day extension; however, there should be a formal declaration from the Secretary explaining why an extension is necessary and where current insured losses stand.”
The letter, dated March 6, was addressed to federal insurance office director Michael McRaith.
“RIMS sincerely appreciates the Department of the Treasury’s efforts to further study the TRIA program and we look forward to supporting them throughout the process,” stated RIMS, whose members include about 11,000 risk management professionals, in a press release Tuesday.
TRIA, originally passed in 2002, essentially requires commercial property insurance in the U.S. to cover terrorism, with the federal government sharing losses under certain conditions. RIMS said earlier that any company with “facilities, employees or components of their supply chain” in the U.S. is affected by TRIA.
TRIA stipulates that no act shall be certified for the purpose of TRIA coverage if the property and casualty losses do not exceed $5 million.
President Barack Obama signed Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2015 into law Jan. 12. That law stipulates that within nine months of its enactment, the Treasury Secretary must “conduct and complete a study on the certification process.”
That study must include “the establishment of a reasonable timeline by which the Secretary must make an accurate determination on whether to certify an act as an act of terrorism.”
In his letter March 6, Roberts said the purpose of a 60-90 day deadline would be to help alleviate uncertainty on the part of policyholders as to whether an attack would in fact be certified.
“For several months following the 2013 Boston Marathon bombings, there remained a great deal of uncertainty surrounding whether the attack would be certified as an ‘act of terrorism’ for the purposes of TRIA,” Roberts wrote. “This left many policyholders in limbo. Those that had chosen to purchase terrorism coverage were unable to have claims paid under that coverage, as policies typically required the act to be certified. Likewise, those business owners who had chosen to forego terrorism insurance were at risk of having claims denied if the act was certified as acts of terrorism are generally excluded from standard property and casualty policies.”
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, RIMS reported in 2013 in a paper titled Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective. RIMS noted at the time that TRIA has 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 $100 billion.
With the law renewing TRIA, the $100-million “program trigger” will increase to $120 million in 2016, and will go up by $20 million every year until it reaches $200 million in 2020.
In his March 6 letter, Roberts noted the law extending TRIA changes the certification process.
“We are pleased that the 2015 TRIA extension granted certification decision-making authority to the Secretary of Treasury in consultation with the Secretary of Homeland Security,” Roberts wrote. “We believe that the previous requirement that the Secretary of Treasury, Attorney General, and the Secretary of State make the decision concurrently only added unnecessary complications to the process.”
Two years ago, RIMS recommended that TRIA require the inclusion of coverage of acts of terrorism involving the use of nuclear, biological, chemical or radiological devices.
“TRIA, as currently constructed, neither includes nor excludes NBCR events,” RIMS noted at the time. RIMS said insurers “have largely relied on long-standing standard exclusions for nuclear and pollution risks to include exclusions for NBCR events in terrorism policies.”
Last April, the U.S. President’s Working Group on The Long Term Availability and Affordability of Insurance for Terrorism Risk noted that after the 2007 renewal of TRIA, “private property reinsurance generally continued to exclude categories of terrorism” committed by those who are ‘domestic’ agents, as well as all losses caused by NBCR attacks.”
The law extending TRIA to 2020 “does not include the so-called ‘bifurcation’ proposal, which would have treated nuclear, biological, chemical, and radiological attacks differently from the so-called ‘conventional’ terrorism attacks,” Carolyn B. Maloney, who represents the 12th district of New York in the House of Representatives, told Congress in December.
RIMS and other organizations had urged Congress to get a bill before President Obama before the end of 2014. The Senate passed TRIPRA July 17, but it was not put before the House of Representatives for a vote until Dec. 10, at which point the House voted to amend the bill. The Senate adjourned before voting on the new version of the bill.
TRIA was originally enacted because “terrorism risk insurance quickly became either unavailable or very, very expensive and unaffordable,” after the Sept. 11, 2001 hijacking of four civilian airplanes, Congressman Gregory W. Meeks said in the House of Representatives last year during debate on renewing TRIA. Inflation-adjusted losses from the Sept. 11 attacks were about US$42.9 billion, Meeks added at the time.
Under TRIPRA, an act of terrorism is one that is “violent” or dangerous to human life, property or infrastru
cture. 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.”
During debate on TRIPRA in December, Chicago-area Congressman Randy Hultgren has warned that without a renewal, “Illinois’ small insurers may be subject to costly rating downgrades or have to exit certain insurance markets altogether, leaving customers in the lurch.”