Terrorism insuranceInsurance industry rattled by Congress's failure to reauthorize terrorism insurance backstop

Major commercial insurers and lenders serving the real estate, tourism, and construction sectors were surprised by Congress’s failure reauthorize the federal government’s terrorism insurance backstop,or at least extend it into 2015, when the new Congress can then reach a consensus.

The Terrorism Risk Insurance Act (TRIA) was established in November 2002 as a federal backstop to protect insurers in the event an act of terrorism results in losses above $100 million. It has been extended and reauthorized twice. The insurance industry had hoped that TRIA would be renewed for another six years.

Representative Paul Ryan (R-Wisconsin) told an audience earlier this year at the Financial Services Roundtable that TRIA would not pass the House until reforms were made to the bill. “The way I see this coming down is, it’s going to get extended,” Ryan said. “The question is: Do you do reforms now and negotiate, or do you just do a short-term extension into next year and then do negotiations?”

The bill was passed by the House, but Senate Republicans and Democrats remained in disagreement through the end of the legislative session.

The extension of TRIA — the Terrorism Risk Insurance Program Reauthorization Act of 2014 passed by the House — raised the federal coverage backstop to $200 million in industry losses. It also included a measure to create the National Association of Registered Agents and Brokers (NARAB) to streamline non-resident market access for insurance agents and brokers. Industry analysts believed the inclusion of NARAB led to the legislation’s downfall in the Senate.

According to Business Insurance, Senator Tom Coburn (R-Oklahoma) objected to the measure on states’ rights ground.

“As an industry, everyone is surprised,” said Ben Tucker, New York-based head of the U.S. terrorism and political violence crisis management business at XL Group. “We are surprised and disappointed about the uncertainty it has created,” said Brad Wood, senior vice president, risk management, at Marriott International Inc. in Bethesda, Maryland. Real estate and construction projects are particularly at risk as lenders of major projects in Tier One cities including New York, Chicago, and San Francisco require some form of terrorism insurance.

Insurers have reported a significantly increased demand for private-market terrorism insurance since last week. Most terrorism insurance will now come as a stand-alone coverage. XL Group offers $100 million of per-risk capacity for such coverage, and has experienced a 500 percent increase in submissions in the first forty-eight hours after the senate’s inaction, Tucker said. “I do think there will be a rush to lock up available coverage for January, particularly in Tier One cities,” said Robert Hartwig, president of the Insurance Information Institute Inc. in New York. “As policies expire, insurers will no longer be obliged to offer terror cover as they were under the act, so carriers will offer terrorism insurance on a case-by-case basis at a price generally higher,” he said.

Senator Chuck Schumer (D-New York), a supporter of the Senate version of the bill, said he hopes the bill will be debated on the Senate floor early in 2015. “We hope that next year, the House Republican leadership will work with us in the same bipartisan way that the Senate did when we passed a TRIA bill 93-4. We hope the House will pass a bill quickly because billions of dollars of projects and hundreds of thousands of jobs are at risk,” Schumer said.