Best’s News & Research Service - June 19, 2019 11:07 AM (EDT)
Insurance Groups, US Senators Express Urgency Over Terrorism Backstop Renewal
WASHINGTON //BestWire// - U.S. senators and trade representatives agreed the Terrorism Risk Insurance Program needs to be reauthorized well before it expires next year to provide certainty for the insurance markets that would be upended with a program lapse.
“We have seen a decline in both the frequency and severity of terrorist incidents in the U.S. in the last several years,” said Tarique Nageer, terrorism placement and advisory leader, Marsh, “and there have been no certified terrorism losses to the country since TRIA was originally passed in 2002.”
“But we cannot afford to be complacent,” Nageer testified before the U.S. Senate Banking, Housing, and Urban Affairs Committee. “The federal backstop created by TRIA restored insurance capacity during the critical post-9/11 period.”
U.S. Sen. Robert Menendez, D-N.J., agreed Congress should quickly rewrite the program.
“Without Terrorism Risk Insurance, businesses lose out on essential financing options,” Menendez said, “and I think allowing TRIA to lapse or injecting uncertainty in the process can have serious economic consequences.”
Although the United States has not suffered a repeat of 9/11, terrorism remains a constant threat, Nageer said. The Institute for Economics & Peace estimated terrorism cost the global economy $415 billion between 2013 and 2017, he said.
Nat Wienecke, senior vice president of federal government relations at the American Property Casualty Insurance Association, urged Congress to move swiftly.
“APCIA also urges Congress to reauthorize the current Terrorism Risk Insurance Act program as soon as possible,” Wienecke told Best’s News Service. “Though the program expires at year-end 2020, it is imperative that TRIA be reauthorized this year.”
“This fall, insurers will begin to negotiate new policies with durations running past TRIA’s expiration and have provisions ending terrorism coverage should TRIA lapse,” he said. “Reauthorizing TRIA as soon as possible also will avoid disruptions and confusion in the marketplace for both insurers and their consumers.”
Jimi Grande, senior vice president of government affairs for the National Association of Mutual Insurance Companies, also urged a speedy reauthorization.
“Congress let the program lapse for several weeks at the end of 2014 and caused substantial disruption in the commercial insurance market — they cannot allow that to happen again,” Grande told Best’s News Service. “This hearing helps lay the groundwork for what we hope will be an expeditious reauthorization process resulting in a long-term extension of the TRIA program without substantive alteration.”
The federal program acts as a financial backstop for the property/casualty industry to help drive down the cost of terrorism coverage. Before the backstop kicks in, individual events must be certified as acts of terror by the Secretary of State, the Treasury Secretary and the U.S. Attorney General (Best’s News Service, June 1, 2016).
For federal funding to kick in, the country would have to exceed $200 million in a given year rather than losses from a single event. Once the federal backstop kicks in, insurers would still be required to cover 20% of all claims. The other 80% would be covered by the federal government and paid back over time.
AM Best said in a recent commentary, beginning midyear 2019, it will compile an internal list of rated insurers with terrorism exposure. Those insurers exceeding certain thresholds in AM Best’s view with regard to exposures or TRIPRA reliance will be asked to present detailed contingency plans on how they will mitigate their exposure if TRIPRA is not renewed (Best’s News Service, May 14, 2019).
AM Best said insurers that cannot provide a sufficient action plan to reduce exposures to terrorism risks could face negative rating pressure by year-end 2019.
“Whether TRIPRA will be extended further past Dec. 31, 2020, and if so, under what terms and conditions, remains in doubt” amid a “hyper-partisan atmosphere in Congress,” AM Best said in a Best’s Commentary (Best’s News Service, May 22, 2019).
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)