Risk Management

Employers Fear Terror-Insurance Sunset

Corporate insurance buyers push to renew the federal law that provides a market for terrorism coverage.
Caroline McDonaldFebruary 7, 2013

Corporate insurance buyers and insurance companies are pushing Congress to pass a bill introduced on Tuesday that would extend the Terrorism Risk Insurance Program Reauthorization Act of 2007, which is slated to sunset at the end of 2014.

The current law provides a federal reinsurance backstop to private insurers to enable corporations to buy property-casualty insurance that covers terrorist acts. Signed into law by President George W. Bush in 2002 and reauthorized in 2005 and 2007, the law was conceived of by Congress as a temporary solution to the lack of coverage. The thinking was that the insurance industry would develop a private-sector solution to the problem. It has not done so yet.

H.R. 508, a bill introduced by Rep. Michael Grimm (R-NY) and nine co-sponsors,which would extend the law for five years. The bill should be passed to prevent economic damage and job losses, the Coalition to Insure Against Terrorism (CIAT), a business-insurance consumer group representing real estate, manufacturing, construction, entertainment, and retail companies.

In 2002, in the wake of the 9/11 terrorist attacks, President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) into a law that was reauthorized in 2005 and 2007. The program provides a federal reinsurance public-private risk-sharing program. 

Without the law, private terrorism risk insurance coverage would not be commercially available, the CIAT said. “The current federal terrorism risk insurance program has been a tremendous success. At almost no cost to the taxpayer, the national terrorism insurance program has made it possible for more than a decade for businesses to purchase terrorism risk coverage,” CIAT wrote in a recent letter to Rep. Grimm.

The law “has helped keep the economy going in the face of continued terrorist threats by allowing businesses across America to secure this commercially necessary product, saving countless jobs in the process. It has stabilized the terrorism insurance marketplace and restored insurance capacity to an enormous portion of the U.S. economy, thereby ensuring economic continuity critical to the nation’s overall security.”

CIAT also wrote that TRIPRA goes a long way to insulating taxpayers. The law requires that private- insurer capital and an assessment on commercial policyholders be used to pay losses on the scale of 9/11 insured losses – before the use of taxpayer resources.

According to the CIAT, studies by the Government Accountability Office (GAO), the President’s Working Group on Financial Markets, and other terrorism risk observers have concluded that acts of terrorism are uninsurable risks. Because there is no feasible private sector marketplace for this coverage, the group says, TRIPRA’s expiration would leave policyholders and taxpayers unprotected.

Leigh Ann Pusey, president and chief executive officer of the American Insurance Association, an industry group, explained in a statement, “Terrorism does not meet the core characteristics of a privately ‘insurable peril.’ TRIA provides a much needed backstop to insurance companies for large certified terrorism events, above a $100 million loss, while requiring insurers to offer terrorism insurance to commercial policyholders. As a result, insurers are able to offer terrorism coverage to commercial policyholders while TRIA provides all-important market stability.”

The most recent reauthorization of the law eliminated a requirement that the terrorists must have been acting on behalf of a foreign person or foreign interest. It also requires the Comptroller General to determine whether there are specific markets in the United States where there are constraints on the amount of terrorism insurance available.

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