The Terrorism Risk Insurance Act (TRIA) may have sailed through Congress during its original 2002 authorization, but the insurance industry’s pleas for reauthorization are falling on increasingly deaf ears.
“TRIA restored insurance capacity at a critical time after 9/11 and continues to be the backbone of a healthy terrorism insurance market,” said Marsh Executive Vice President Peter Beshar. “Our clients across the United States…need and want terrorism coverage and would be less likely to get it without TRIA.”
However, the assertions—that terrorism is unpredictable and incurs financial losses too great for private industry to insure—aren’t as persuasive to some lawmakers.
“At the time, it was thought that the TRIA act would give the insurance industry time to re-capitalize and develop new models that they could price for terrorism risks and increase industry capacity,” said Financial Services Committee Chairman Jeb Hensarling, R-Texas, in his opening statement at the hearing. “We all must recognize that in just five years, TRIA has leapt in scope and quadrupled in length, neither of which I think could be mistaken for facilitating a transition to a viable market for private terrorism risk insurance.”
Hensarling added that while he has an open mind on TRIA’s reauthorization, his remains a “skeptical mind.”
These statements come on the heels of a Cato Institute report that calls for an end to TRIA after the program sunsets in December 2014. Report author Robert Rhee says TRIA has outlived its usefulness and now represents “corporate welfare.” The AIA, however, praised the program’s creation of a public-private partnership.
“Rather than crowding out private market capacity, TRIA’s public-private partnership has actually enabled commercial insurers to become more comfortable with individually managing terrorism exposures without compromising financial solvency,” the association said.
TRIA functions as a backstop, with the government bound to provide reinsurance coverage to insurance companies following a declared terrorism event. The program is triggered when losses exceed $100 million, something that hasn’t happened since the act was originally passed.
After the Sept. 11, 2001 terrorist attacks in New York and Washington, D.C., insurance companies paid more than $30 billion to those insured against terrorism. The result was a significant shrinking of the market, which stalled economic activity, including lending and new construction. TRIA was meant to reverse those harmful trends.
According to Insurance Institute for Business and Home Safety CEO Julie Rochman, it still does.
“My hope is that TRIA will continue to do what it has already done: allow the economy to function in the face of terrorist threats,” she said.
