TRIA likely to be made permanent

Published 27 April 2007

TRIA mandates that the U.S. government provide commercial insurers up to $100 billion in reinsurance capacity for claims arising from terrorist events; the program is set to expire in December, but is likely to be made permanent and expanded

The Terrorism Risk Insurance Act (TRIA) of 2002 has been, since its inception, one of the more controversial pieces of post-9/11 legislation. TRIA, mandating that the government provide a terrorism insurance backstop, has been hailed by supporters as a mark of seriousness by the government about the econonic effects of terrorist acts, but harshly criticized by opponents as not only unnecessary (because private insurance could do the job) but also as distorting market forces and encouraging business decisions of questionable value. TRIA was initially enacted so it would expire in December 2005, but then extended until December 2007.

This debate notwithstanding, the House Financial Services Committee and Senate Banking Committee are now in the process of crafting legislation that would extend TRIA for at least six years, and leaders from both parties and both chambers of Congress said they would like to make the program permanent.

House minority whip Roy Blunt (R-Missouri) and Senator Joseph Lieberman (I-Connecticut), addressing the Independent Insurance Agents & Brokers of America’s annual legislative conference, said the threat of terrorism has not abated since the program was created in 2002, and the potential economic consequences of a catastrophic attack would be dire. Under TRIA, the federal government provides commercial insurers up to $100 billion in reinsurance capacity for claims arising from events certified by the U.S. Treasury Department as the work of foreign terrorists.

The Financial Times reports that Lieberman, who is Senate Homeland Security Committee chairman, said the TRIA program has had “exactly the results that we had hoped for it,” in ensuring that terrorism coverage remained following the 9/11 terrorist attacks, which prompted many reinsurers choosing to exclude coverage for terrorist-related claims. Liberman pointed to a recent survey by the U.S. Treasury, which found that half of all U.S. commercial property insurers said they would decline to offer terrorism coverage should TRIA expire. “The staggering financial losses that would result could literally cripple America’s insurance industry and make it impossible for businesses to get insurance that is affordable against acts of terrorism,” Lieberman said.

Blunt agreed with the call to make the program permanent, and also suggested it should be expanded to include coverage for group life insurance. “We need to do things that encourage people to have the kind of insurance they need,” he said. Lieberman also advocated expansion of the program, in his case, by extending coverage to all nuclear, chemical, biological, and radiological risks. The current backstop includes coverage for NCBR events, but only where those events are covered by the underlying insurance contract, such as in the workers’ compensation market.

It would bring important parts of our economy to a halt, just the fear of terrorism attack without, God forbid, the actuality of it,” Lieberman said, noting the American Academy of Actuaries have estimated an NCBR attack could cause as much as $770 billion in claims. “This enormous exposure must be shared responsibly by the private sector and by our government.”