Insurer Groups Laud Congressional Effort to Extend TRIA

At a press conference on Tuesday, four members of the House of Representatives introduced a bill extending the Terrorism Risk Insurance Act (TRIA). Both the American Insurance Association and the National Association of Mutual Insurance Companies praised the bill’s introduction, which would provide a two-year extension on the federal back-stop.

According to AIA, the legislation introduced by several House Republicans to extend the Terrorism Risk Insurance Act of 2002 for “demonstrates that Congress is prepared to act this year to prevent TRIA’s national economic safety net from fraying in coming months.”

TRIA, enacted in response to the 9/11 terrorist attacks, ordered that insurers offer terrorism coverage while creating a federal backstop for huge losses. Lawmakers envisioned it only as a temporary measure until insurers could assess the market. The program and the backstop are set to expire Dec. 31, 2005.

“With policy expirations occurring later this year, it is absolutely essential that the federal backstop provided by TRIA be continued,” said David A. Winston, NAMIC senior vice president, federal affairs. “So many critical economic decisions depend on the availability of terrorism coverage, making the TRIA extension imperative to avoid marketplace instability.”

At present, there is no private market alternative to TRIA as terrorism coverage remains an uninsurable risk. The underwriting criteria for such coverage is highly sensitive classified information within the sole possession of the U.S. Government. Further, there has been no claims experience outside of the tragic events of 9/11.

“While TRIA gives Congress until well into 2005 to decide whether to extend TRIA, the commercial policyholder community, insurance regulators, insurers, and many members of Congress on both sides of the political aisle have been actively advocating a decision this year to extend the program,” stated Leigh Ann Pusey, AIA’s Sr. VP of government affairs. “It is important to every sector of the U.S. economy that the debate over TRIA extension is now fully engaged and making progress on Capitol Hill,” she added.

The AIA bulletin described how TRIA functions, and added that in the association’s opinion it “has worked well, enabling the commercial insurance marketplace to function even though the very real threat of further catastrophic terrorism remains.”

Reps. Richard Baker (R-LA), who serves as Chairman of the House Financial Services Committee’s Insurance Subcommittee, Sue Kelly (R-NY), who chairs the committee’s Subcommittee on Oversight and Investigations, Chief Deputy Majority Whip Eric Cantor (R-VA.), and Representative Pete Sessions (R-TX) are the lead sponsors of the “Terrorism Insurance Backstop Extension Act of 2004 (HR 4634).”

The bill proposes to extend TRIA for two years (until December 31, 2007), and “will require that insurers make terrorism coverage available for covered commercial insurance products during both years. The individual insurance company retentions (deductibles) will be held steady at the Year 3 level (15 percent of prior year direct earned premiums) in the new Year 4 of the program, while phasing out the program with a 20 percent deductible in the fifth and final year,” said the AIA.

“In addition, the proposal would maintain the gradual increase in the overall insurance industry retention level; this amount would be $17.5 billion in Year 4 (up from $15 billion in Year 3), and would rise to $20 billion in Year 5. Finally, the bill calls on the U.S Treasury to report on long-term solutions for dealing with terrorism-related risks in the absence of a federal backstop.”

Pusey added that action in 2004 is crucial in light of the U.S. Treasury’s decision last week to extend the “make available” provisions of TRIA for all policies written during 2005 (See IJ Website June 18 & 21). She stressed that, as a result of Treasury’s action, “insurers and policyholders will be exposed during the part of the coverage term that that runs beyond TRIA. Policyholders, state insurance regulators and insurers understand that this potential mismatch between policy periods and TRIA’s expiration makes it absolutely critical that Congress acts this year to extend TRIA beyond December 31, 2005.”