Both House, Senate TRIA bills, place more liability on insurers: Report

This September 20, 2001 photo shows debris at Ground Zero following the September 11, 2001 terrorist attack on the World Trade Centre buildings in New York./ Larry Bruce / Shutterstock.com

While bills introduced in the U.S. Senate and House of Representatives to extend the federal terrorism insurance backstop mark considerable progress towards that goal, both would increase the insurance industry’s liability following a terrorist attack, a briefing report released Monday by A.M. Best Co. Inc. said.

Examining the Terrorism Risk Insurance Program Reauthorization Act of 2014, passed by the Senate 93-4 earlier this month, and the TRIA Reform Act of 2014, which has been approved by the House Financial Services Committee, Oldwick, N.J.-based Best notes that the measures signal bipartisan support for extending the terrorism backstop.

But, the Best report said, “While their introduction signals bipartisan support to extend the federal backstop, both bills increase the insurance industry’s liability. Further, neither provides a permanent solution of risk sharing between the private sector and the federal government for insuring terrorism risks.”

The Senate bill, which would extend the terrorism risk backstop for seven years, would maintain the program’s existing $100 million loss trigger but would gradually increase insurers’ aggregate retention to $37.5 billion from the existing $27.5 billion.

Meanwhile, the House bill would leave the trigger at $100 million for nuclear, chemical, biological or radiological acts of terrorism, but would gradually increase the trigger for non-nuclear, chemical, biological and radiological acts to $500 million over the measure’s five-year life.

Both bills would decrease the federal share of payments for covered losses to 80% from 85%, though the House bill would maintain the current level for nuclear, chemical, biological and radiological attacks.

“The changes under the bills will impact the exposure for some insurers,” the Best report said. “If such an increase exceeds a company’s risk tolerance and mitigation strategies are not available or affordable, it may result in non-renewal of concentrated risks.”