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NEW YORK — Advocates are calling for an extension to the Terrorism Risk Insurance Act of up to 10 years to help take the law out of the cycle of needing renewal every few years.
A longer lifespan for the next iteration of the federal terrorism backstop would help ensure continued stability for the commercial market and reduce the efforts needed to cope with repeatedly facing expiration, according to experts speaking at the National Association of Insurance Commissioners’ summer meeting in New York on Sunday.
An extension of up to 10 years, with a minimum six-year extension, “is necessary to create stability in the marketplace and get through the sort of cyclical nature we’ve had with 2003, 2005, 2015 and now 2020,” said Aaron Davis, managing director for Aon Property Broking within Aon PLC, in New York, speaking on the sidelines of the conference.
“It’s no longer a short-term program. It needs to be long-term,” Mr. Davis said.
Terrorism coverage does see widespread utilization, according to Jeffrey Czajkowski, Kansas City, Missouri-based director of the Center for Insurance Policy and Research, an independent entity within the NAIC.
Data from the center’s TRIA Policy Workshop shows terrorism coverage takeup rates between 80% and 90% for most Tier 1 cities, with San Francisco an outlier at 71% and Washington the highest at 90%.
Tier 2 cities are largely in the 70% and 80% range, with Miami at 58%, Orlando at 57%, and San Diego last at 54%.
The center also advocates for a longer extension of between seven and 10 years, according to Mr. Czajkowski.
Early congressional activity is encouraging, Mr. Davis said.
“We’re seeing a lot more discussions happening to do this sooner rather than later,” Mr. Davis said.
The Senate Banking Committee had a hearing in June and, the House Financial Services Committee is doing roundtables around the country to get insurance industry feedback, he said.
Responding to the notion that the legislation provides an unfair subsidy to the insurance industry, Mr. Davis said that under the way TRIA would function in 2020, the largest insured terrorism loss in history — the Sept. 11 attacks in New York, at $45 billion in adjusted current dollars — would be entirely retained by the private marketplace.
The CIPR report offered a series of case studies to show the distribution of losses and reimbursements for several different scenarios in different cities.
In one, a large dirty bomb, a radiological device, in Houston causes $29.5 billion in economic losses, including 27%, or $7.9 billion, of uninsured losses.
In this case, 73% of insured losses ($15.8 billion) are covered by insurers and 27% ($5.8 billion) by the federal backstop, Mr. Czajkowski said, with $14.3 billion the threshold of insured losses which must be reached in order for the backstop to kick in. “So, until losses reach $14 billion in Houston, you’re not going to have any TRIA sharing for this scenario,” he said.
President Barack Obama has signed into law legislation extending the federal terrorism insurance backstop through Dec. 31, 2020.