The U.S. terrorism insurance backstop will likely be renewed, but it remains unclear in what form and when legislation will be introduced, sources say.
Insurance industry advocates will likely push for some changes to the backstop, which is commonly referred to as TRIA, such as extending the program for a longer period.
But the industry is anxious to avoid another temporary lapse in the backstop as happened during the most recent renewal.
The Terrorism Risk Insurance Act was passed in 2002 in response to massive losses from the Sept. 11, 2001, terrorism attacks in the United States. It provided a government guarantee for insurers exposed to terrorism risk — a peril that insurers said was unpredictable and difficult to underwrite.
The program was renewed three times, most recently in Jan. 12, 2015, via the Terrorism Risk Insurance Program Reauthorization Act.
The last renewal occurred two weeks after the prior law expired, sending many policyholders, insurers and others scrambling to craft and implement solutions to lapses in coverage and other challenges. TRIPRA expires on Dec. 31, 2020.
“I’m still anticipating that we’re going to get a renewal unless something totally unanticipated happens,” said Wendy Peters, executive vice president of financial solutions terrorism and political violence for Willis Towers Watson PLC in New York. Ms. Peters also sits on the Advisory Committee on Risk-Sharing Mechanisms of the U.S. Department of the Treasury.
But “we’re not there yet,” and “there’s a lot of conjecture going on,” regarding an extension bill, she said.
Aaron Davis, Chicago-based managing director for Aon Property Broking, a division of Aon PLC, said action on TRIA may have slipped down the federal legislative agenda into next year, possibly the second quarter.
A report on the program by the Treasury’s advisory committee is due in June 2020, said Ms. Peters. The committee will likely complete its recommendations before the deadline, but “we’ve still got a way to go” and legislation has not yet been drafted, she said.
The committee, which is charged with advising the Federal Insurance Office on the creation and development of nongovernmental, private market risk-sharing mechanisms for terrorism risk, last met in August and is scheduled to meet again in September.
Risk managers generally have been supportive of TRIA.
“TRIA is a good core backstop, especially for small and medium size organizations without access to alternative markets. It assists and stabilizes the market for all participants,” said John Burkholder, director of risk and records management for Bernalillo County in New Mexico, which includes Albuquerque. Mr. Burkholder is also chair of RIMS’ External Affairs Committee.
He utilizes TRIA to secure terrorism coverage for the county, and notes that Bernalillo County is the home of the National Museum of Nuclear Science and Sandia National Labs, giving the area a strategic profile.
“Local governments are very susceptible to terrorist acts,” Mr. Burkholder said. “It’s important to have this protection,” without which the county would have to make “changes” in its activities, he said, without being specific.
“It is important to have TRIA as a backstop. Otherwise, there would be uncertainty of how to cover the protections afforded by the Act and what changes would be required for our operations and coverages,” Mr. Burkholder said.
James Lynch, chief actuary and senior vice president of Research and Education for the Insurance Information Institute in New York, says the program has helped foster a strong commercial marketplace.
“You can look at it objectively and say it has worked because there is a marketplace and the market is certainly more robust than it was in its earliest days,” he said.
Research from Aon shows terrorism premiums have declined substantially both as a portion of property premiums and total insured value.
“The participation of insurers has increased significantly since the program started,” Ms. Peters said. “It is encouraging participation.” Beyond renewal of the program, TRIA advocates are lobbying for a longer extension than the previous five years. The National Association of Insurance Commissioners is advocating an extension of seven to 10 years.
Aon is calling for an extension of a minimum of 10 years, noting that “an early and extended reauthorization would keep the market stable and avoid increased costs to the system,” while warning “if not reauthorized, we believe property and casualty insurers will not write policies that protect clients from highly destructive terrorist events, and pricing will spike as many terrorism insurance carriers exit the market.”
Past reauthorizations have increased insurers’ retentions and made other changes.
