Senate passes modified TRIA extension version

Published 19 December 2005

White House-backed Senate version of TRIA would extend government backstop of terrorism insurance by two years, increasing the amount to be paid by private insurance companies, and excluding certain items from coverage

They say that nothing has more permanency to it than a temporary measure passed by Congress. In evidence: The 2002 Terrorism Risk Insurance Act, or TRIA. It was passed in the aftermath of the 9/11 attacks, and was envisioned as a government insurance backstop to supplement private insurance in case the latter could not satisfy claims resulting from a terror attack. Trouble is, insurance companies, real estate developers, and others have become so accustomed to the temporary measure, that they want it extended (it expires at the end of the year).

The White House — reluctantly — and Senate sought to extend the program but limit its scope and shift more of the terrorist-induced claims coverage to the private sector. The TRIA extension version which passed in the House last week actually expanded the program’s scope and reach. The White House allowed that it would oppose any effort to expand TRIA, and on Saturday the Senate, on a voice vote, approved a revised version of TRIA (S 467). The new legislation would require insurers to pick up a bigger share of damages from terrorism attacks in the United States. The White House said that the Senate bill was “consistent with administration goals of encouraging private markets and reducing taxpayer exposure.”

-read more in this Wall Street Journal report (sub. req.); for text of S. 467 see this Web page (.pdf)

The Senate TRIA extension version: Main points

Under the current version of TRIA, insurers are required to offer terrorism insurance to businesses and in return the government limits the industry’s losses in case of attacks by foreign terrorists. TRIA covers 90 percent of claims stemming from foreign terrorist attacks in the United States, after the industry pays property, workers-compensation, and business-interruption damages.

The Senate version of the extended TRIA reduces coverage in the program by excluding commercial vehicles, theft, surety ,and other items. It also raises the deductibles for insurers before federal help begins. The threshold for the program to take effect would rise to $50 million in losses, up from $5 million this year. In 2007 that trigger would rise again, to $100 million. In addition, the new legislation would increase an insurer’s deductible from 15 percent this year to 17.5 percent next year and 20 percent in 2007. The deductible is the percentage of the total earned premiums collected in the insurance lines covered by the program that a company must pay before the government starts to help pay claims. After industry pays the equivalent of damages caused by the 9/11 attack on New York’s Twin Towers, or about $32 billion, the federal government would cover 90 percent of the remaining insured losses in 2006. In 2007 industry would cover about $40 billion of the damages, with the government covering 85 percent of claims above that level.