11 April 2014 Insurance

Industry worries over revamped TRIA

The renewal of the Terrorism Risk Insurance Act (TRIA) in the US has moved a step closer thanks to a new bill which appears to enjoy cross-party support. But some industry bodies have voiced concerns over proposed changes to the act.

The two major political parties in the US have reached a bipartisan agreement supporting the reauthorisation of TRIA, which expires at the end of 2014, for another seven years.

But the bill, by Senator Schumer, along with a group of co-sponsors, also makes some notable changes to the nature of the government backstop, which provides insurance coverage against losses from devastating terrorist attacks.

A number of industry bodies and companies including the American Insurance Association (AIA) and broker Marsh have given their support to the Bill although the AIA has also voiced concerns over its new format.

Currently, insurers are obligated to pay 20 percent of the prior year's direct earned premium for covered commercial lines as a deductible. Following the payment, the federal government will cover 85 percent of each company’s losses until total losses reach $100 billion. Each company is obligated to pay the other 15 percent of its losses.

Under the Schumer Bill, the amount insurers’ co-pay would increase from 15 to 20 percent, with the government covering 80 percent of each company’s additional losses.

The second change sees the mandatory recoupment threshold rise from $27.5 billion to $37.5 billion. When the insurance industry’s aggregate uncompensated losses are below $37.5 billion the government will be required to recoup the TRIA payments outlaid to insurers.

Leigh Ann Pusey, president and chief executive officer of AIA, said: “While we appreciate that this bill creates momentum toward an extension, we do have concerns with the legislation. In particular, the insurer co-share increase to 20 percent, even phased-in over five years, could lead to decreased market capacity.

“A key point is that any legislation to reauthorize TRIA must protect the balance achieved by the program and not introduce higher retentions on companies that could end up hurting their individual ability to offer insurance coverage to U.S. businesses, including terrorism risk coverage.”

Marsh & McLennan added: “Marsh & McLennan Companies is greatly encouraged by the Senate's action today to advance the Terrorism Risk Insurance Program Reauthorization Act. We consider TRIA to be a model private-public partnership and insurance markets, particularly in workers compensation and property, have been unsettled by the uncertainty surrounding the program’s reauthorization.”

The TRIA programme has enabled private insurance companies to provide policies in high-risk areas and to high-risk developments such as stadiums, malls, ports and airports.

“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 Senator Charles Ellis Schumer.

“But there is still more to be done and this crucial bipartisan plan will reauthorize and extend the Terrorism Risk Insurance Act 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.”

Senator Dean Heller added: “In the current economic environment, certainty is a valuable commodity for businesses. TRIA should be extended in order to help Nevada businesses succeed, especially those in the hospitality and tourism industries. By extending the Terrorism Risk Insurance Act, this legislation will ease the concerns of businesses throughout Nevada, especially Las Vegas, about the threat of TRIA expiring.”

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