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Congress Ends Session Without Renewing TRIA; Insurance Industry ‘Reeling’

“Incredible disappointment” is echoing within the insurance industry as Congress has chosen to adjourn without reauthorizing the Terrorism Risk Insurance Act.


The federal terrorism insurance backstop is set to expire on January 1, 2015. Without the law in place, businesses affected by a major terrorist attack after this date could be left without insurance.  The law was enacted first in 2002 following the terrorist attack on 9/11, which caused losses of nearly $25 billion. Faced with the realization of this potential for enormous loss, the terrorism insurance marketplace significantly shrank. The backstop — renewed twice in 2005 and 2007 stabilized the market.


“I think this was a surprise to many,” said Robert Hartwig, president of the Insurance Information Institute. “The consequences are significant.”  “One of the overlooked aspects of this law was that it made it mandatory for insurers to offer terrorism coverage,” Hartwig told Advisen. “Without the law, coverage won’t be offered or it will at a very expensive price and declined” by the policyholder.


Without the backstop, insurers will once again reassess exposures and likely pull back from terrorism risk coverage, endangering the ability to recover after a large terrorist attack.  “By letting TRIA lapse, Congress has failed to protect taxpayers and the economy,” said the American Insurance Association in a statement.


January 1 is a big renewal date, and many policies signed before the law’s sunset contained provisional terrorism coverage. It would be there if TRIA was renewed, but terrorism risk would be excluded if the bill restarting the act expired, Hartwig said.  That is what will happen now because the Senate failed to persuade retiring Sen. Tom Coburn, R-OK, to lift his hold on essentially the same bill that overwhelmingly passed in the Senate and House previously. Coburn did not want one provision in the measure — to recreate the National Association of Registered Agents and Brokers — to be included.


“Right now I’d say everyone is still reeling, and are having a difficult time understanding why the cloture clocked wasn’t started,” said Joel Wood, senior vice president of government affairs for The Council of Insurance Agents & Brokers, in an interview with Advisen. “Sen. Coburn’s effort to roll back NARAB would have been easily overwhelmed by a vote.”
The potential expiration will also affect the real estate market. Banks require terrorism insurance in order to secure or refinance a loan.  Robert G. Morris, president of insurance brokerage The Rampart Group, told Advisen he has already received telephone calls from panicked clients.  “They have a lot of questions and I don’t have a lot of answers,” he said. “Right now, they can’t buy a piece of property.”  Morris said there is nothing to do but wait to see how the dust settles.
“There is plenty of money in the insurance industry right now but that doesn’t mean [carriers] are going to go out and take this risk,” he explained. “They will go to the reinsurance marketplace and see what they can do. You’ll see capacity shrink. It’ll be very expensive.”  It should not go without mentioning the impact on workers’ compensation. Terrorism risk cannot be excluded from WC policies, but policyholders facing renewal can expect higher rates or potential nonrenewal by an incumbent insurer after it gets through with managing exposures left wide open by TRIA’s sunset.


The Coalition to Insure Against Terrorism, made up of businesses and organizations throughout the real estate, manufacturing, utility, construction, transportation, sports, entertainment and retail sectors, said it was “incredibly disappointed” in the Senate.  “This is a bipartisan failure; the 113th Congress has let down American workers, American businesses and jeopardized US economic and national security. CIAT urges the new Congress to make TRIA reauthorization its top priority in January and immediately vote to extend the program for the long-term,” the group said in a statement.


“The coalition of industry and policyholder organizations will regroup and figure out next steps,” CIAB’s Wood said. “I certainly hope that this is a setback, not an end to the program, and still can’t believe we won’t find a way. In the meantime, we are so deeply disappointed by the dysfunction this represents.”  According to information compiled by the Insurance Information Institute about 60 percent of US businesses buy terrorism but industries responsible for much of the country’s critical infrastructure, such as power and utilities, telecommunications and healthcare, along with financial institutions and local governments have higher take-up rates.  The rate for workers compensation is effectively 100 percent, meaning that every worker in America is protected against injuries suffered as a result of a terrorist attack.


Chad Hemenway, Advisen Managing Editor – Advisen Ltd. December 17, 2014

  • 17 Dec, 2014
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