The Terrorism Risk Insurance Act (TRIA) was initially passed in November 2002 as a response to the terrorist attacks of Sept. 11, 2001. Private insurance carriers had responded to the attacks by excluding acts of terrorism from coverage, and TRIA was needed to entice private carriers to once again cover this risk. By providing the necessary reinsurance so the insurance industry can properly define and limit the financial impact of another significant terrorist event, TRIA-backed terrorism coverage is widely available today at affordable costs.
Currently, TRIA is scheduled to expire at the end of 2014,and Congress is actively debating whether to extend or modify the current coverage. Many in Congress argue that TRIA is no longer necessary. They feel that the threat of terrorism has diminished and that the private insurance industry will continue to provide terrorism coverage without the federal government backstop.
The bombings at last year's Boston Marathon highlight that, indeed, the U.S. still faces a very real threat of terrorist attacks. And the threat is far greater than many realize. A March 2014 report from the Insurance Information Institute highlighted the continued threat of terrorism in the U.S. by detailing 21 separate attempted terrorist acts that were thwarted by law enforcement between 2009 and 2013. Unquestionably, the threat of terrorist attacks against the U.S. remains high.
The pending expiration of TRIA is highlighting what the private carriers' response will be without this financial backstop. Property carriers are tying their terrorism coverage expiration dates to the expiration of TRIA. Without TRIA, many high-profile properties will be unable to secure coverage from the private marketplace. Workers’ compensation coverage is statutory and cannot exclude terrorism as a cause, so carriers in this market are responding to TRIA’s pending expiration by declining coverage to employers in certain geographic areas beyond the end of 2014. Regardless of location, industries with a high concentration of employees, such as healthcare, higher education, defense contractors, financial services and technology companies, are also finding limited markets beyond the end of 2014. This leaves employers with fewer options, which will ultimately result in increased pricing.
But there is a solution. TRIA works. It provides the high-level backstop that the insurance industry needs to forecast potential exposure to a terrorist event and allow companies to underwrite the coverage. TRIA is designed to only be triggered by an extremely large event, even beyond the scope of the Sept. 11 attacks. There are also recoupment provisions built into the law that will repay the federal government if TRIA is triggered, so it is not simply a handout to the insurance industry. TRIA has truly been one of the most successful public/private partnerships in recent memory.
The time to act is now. Congress is debating the issue. I encourage you to reach out to your members of Congress and let them know your thoughts on this important topic:
http://www.usa.gov/Contact/US-Congress.shtml#Contact_Your_Representative_in_the_U.S._Congress
Finally, Marsh recently released its 2104 Terrorism Risk Insurance Report. This report summarizes the current outlook regarding TRIA’s potential expiration, provides benchmarking related to terrorism insurance take-up rates and pricing and offers alternative insurance and risk management solutions for terrorism risks that will be useful for organizations even if TRIA is renewed or extended. I encourage you to read the full report here.
