In April 2014, US Senator Charles Schumer reached a crucial bipartisan agreement on the extension of Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2014...
In April 2014, US Senator Charles Schumer reached a crucial bipartisan agreement on the extension of Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2014.
Created in 2002, the TRIA programme is a critical priority for post-9/11 New York, as well as other high-risk cities. The programme provides a federal backstop for insurance coverage against losses from devastating terrorist attacks. TRIA was previously reauthorised in 2005 and 2007.
After months of negotiating, Schumer introduced this reauthorisation legislation, which is co-sponsored by Senators Heller, Reed, Kirk, Murphy and Johanns.
“In a post-9-11 New York, terrorism risk Insurance has proven to be an absolutely essential partnership between the government and the private sector that has turned rebuilding downtown Manhattan from a question to a certainty,” said Schumer.
“There is still more to be done and this crucial bipartisan plan will reauthorise and extend [TRIA] before it expires at year’s end. Redevelopment and economic growth should be encouraged in New York and other high-risk areas across the country, even in the face of unfathomable terrorist events, and I will work with my colleagues to get TRIA passed this year to preserve this essential tool.”
Should this reauthorisation go to plan, the programme will be extended for an additional seven years and will include two changes, which were necessary in order to gain Republican support for the seven-year plan. It will be phased in over five years.
The first change is that, in the event of a terrorist attack, insurance companies would first be obligated to pay a portion of their premiums (20 percent of the prior year’s direct earned premium for covered commercial lines) as a deductible.
Following that deductible payment, however, the programme currently requires that the federal government cover 85 percent of each company’s losses until the amount of losses totals $100 billion.
Each company is obligated to pay the other 15 percent of losses.
In other words, after an insurer’s losses exceed its deductible, it faces 15 percent co-pay on all additional terrorism losses in conjunction with the federal government’s 85 percent recoupable co-pay.
The proposed legislation would increase an insurers’ co-pay from 15 to 20 percent, with the government still covering 80 percent of each company’s additional losses.
Secondly, when aggregate insured losses are less than $27.5 billion, the TRIA programme currently imposes mandatory policy surcharges that require recoupment of federal payments made under the programme.
As a result, recoupment by the federal government will be mandatory if the insurance industry’s aggregate uncompensated loss is less than $27.5 billion.
Additionally, under the current programme, when aggregate insurer deductibles and co-payments exceed $27.5 billion, TRIA provides the treasury secretary with the authority to recoup federal payments above that amount based on pre-established factors and conditions.
The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry’s aggregate uncompensated losses are less than $37.5 billion, the government will be required to recoup its TRIA payments outlaid to insurers.
Despite the uncertainty over TRIA’s pending expiration, the demand for terrorism insurance has remained strong, according to Marsh & McLennan.
The company’s recent 2014 Terrorism Risk Insurance Report stated that the number of companies purchasing terrorism insurance has remained constant (in the mid-60 percent range) since 2009, and pricing has also generally remained stable.
Marsh noted in its report that the Boston Marathon bombings highlighted the need for a reauthorisation bill to include a streamlined TRIA certification process that clarifies what type of event would be certified as a terrorism event and the timeframe for certification after an event occurs.
The bombing also illustrated the need for TRIA to cover terrorism events that do not meet the act’s certification thresholds.
Dan Glaser, president and CEO of Marsh, commented: “We believe TRIA is a model public-private partnership.”
“Marsh’s new report confirms there is strong, long-term demand for the insurance it backstops with more than six out of 10 companies in the survey purchasing coverage. The existence of the federal programme plays a major part in the availability and affordability of the coverage.”
Now that his bipartisan bill has been introduced, Senator Schumer urged his colleagues to work with him to quickly pass the legislation, as policies are starting to be written that extend into 2015.
