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The timetable for an extension of the U.S. government’s terrorism insurance backstop may slip into next year despite general support in Congress for an extension of the program, experts say.
The Terrorism Risk Insurance Program Reauthorization Act, which extended the Terrorism Risk Insurance Act – commonly known as TRIA – through Dec. 31, 2020, was signed into law on Jan. 12, 2015, by President Barack Obama. The program is designed to provide stability for an orderly terrorism coverage marketplace and respond in the event of a major terrorist event.
While support among legislators is seen as solid, the timetable for renewal may have slipped down the calendar in the face of more pressing legislative business, sources said.
There is general support in Congress for the structure in place now, according to the National Association of Insurance Commissioners, which is advocating for a longer TRIA extension in the range of seven to 10 years.
“We are hearing from both sides of the aisle that there is support for a 5-10 year extension,” said Tarique Nageer, terrorism placement and advisory practice leader for Marsh USA Inc. in New York. But the timetable is “TBD (to be determined). Hopefully for first quarter 2020 or sooner...but that is still up in the air,” he said.
“It sounds like from some of the guidance we’ve been receiving that perhaps some decision-making on this is being pushed down the road into next year, which is unfortunate. We don’t want it to fall off the radar screen,” said Aaron Davis, managing director for Aon Property Broking within Aon PLC based in Chicago. “It seems to have fallen down the list of priorities and is likely not something we will see action on until next year, potentially second quarter at the earliest.”
The insurance industry’s role, as outlined in the legislation, grows each year in terms of a program trigger, as does the level of government recoupment of funds in the event of a payout.
The program’s trigger, the level of losses required for the TRIA backstop to be activated, has risen each year under the reauthorization, from $100 million for calendar year 2015, rising $20 million each year to $200 million for calendar year 2020 and any calendar year thereafter.
In the 2015 reauthorization, the mandatory recoupment of the federal share through policyholder surcharges rose to 140% from 133% previously.
Insurer’s deductibles were set at 20% of each insurer’s direct earned premium of the preceding calendar year: a “sizable up-front retention,” Mr. Davis said.
“Also important to note, there are recoupment mechanisms in place to pay for losses on a post-event surcharge basis,” Mr. Davis said.
An analysis by the Center for Insurance Policy and Research, an independent research body of the NAIC, using a model developed by the Reinsurance Association of America, showed a distribution of insurance industry participation levels in various terrorist act scenarios, from a “dirty bomb” in Houston to a 10-ton modeled bomb event in New York City.
In the New York 10-ton bomb scenario analysis, TRIA would cover 49%, or $18 billion, of insured losses, while about 15% to 18% of total losses were calculated to be uninsured, according to the data.
Supporters emphasize the program’s role in keeping an orderly marketplace.
“TRIA provides a framework for the orderly transfer of that risk to the private market with a backstop for the most catastrophic of events,” Mr. Davis said. “It has worked and fortunately has not been tested.”
“It’s sustainable, it’s affordable, it’s an option many of our clients are exercising,” Mr. Davis said.
One of TRIA’s main purposes is to make sure terrorism coverage is available in the marketplace, according to the NAIC.
“Anything that provides contract certainty for buyers and insurers over the long term makes far more sense than the incremental extensions” passed thus far, Mr. Davis said. “Our focus is on ensuring there is no gap in the legislation as briefly occurred with the 2015 extension.”
Market conditions remain stable at present with TRIA in the background, experts say.
There has been “no change in market conditions yet,” Mr. Nageer said.
Capacity in the stand-alone terrorism coverage market has been steadily reported at roughly $4 billion for a single event with limits much more constrained in so-called Tier One cities such as New York City, primarily Manhattan, where about $1 billion is available.
Workers compensation insurers in California would be responsible for a $27.9 million average annual loss payable without the U.S. Terrorism Risk Insurance Program Reauthorization Act in the event of a terrorist attack, with an attack in San Francisco generating the highest loss, according to a new study.