Terrorism Risk Insurance Act Reauthorized
On January 12, 2015, President Obama signed a bill that reauthorized the Terrorism Risk Insurance Act Reauthorized (TRIA), the federal terrorism risk insurance backstop. With this signing, TRIA will now be extended through 2020 rather than having expired on the chosen date of December 31st, 2014.
TRIA was originally enacted in the wake of the 9/11 attacks due to concerns that terrorism insurance had become too scarce and expensive. TRIA established the government reinsurance system, also known as the federal backstop. This would allow the insurance industry and federal government to share in losses created by a terrorist attack. In exchange for this federal support, covered insurers must offer terrorism risk insurance with terms, amounts, and other coverage limitations (similar to non-terrorism insurance).
TRIA has brought stability to the insurance industry by allowing insurers to more effectively manage their risk portfolios and determine their potential liability. The covered insurers have been able to offer terrorism coverage at affordable prices despite the continued threat of terrorist attacks.
The new law extends TRIA for six years and will maintain the core function of TRIA while gradually expanding the insurance industry’s responsibility for paying for acts of terrorism. The extension contains annual increases in the amount of total losses from a certified act of terrorism required before TRIA’s backstop kicks in, taking it from $100 million to $200 million. The law will also increase the federal government’s mandatory recoupment from $27.5 to $37.5 billion. The law also raises the private industry total recoupment of covered losses from 133% to 140%.
Overall, TRIA’s renewal brings stability to the property and casualty insurance market. It is also good news for real estate, construction, and hospitality industries, all of which depend on terrorism risk insurance as a precondition to finance developments and to maintain operations. During the absence of TRIA, a reported 750,000 private insurance policies were canceled because their creation depended on the existence of the federal backstop. While terrorism risk insurance remained available after TRIA expired, many expected considerable price increases and limited availability. TRIA’s extension also brought stability to the workers’ compensations insurance marketplace as insurers that offer the coverage are also required by law to include coverage for injuries caused by terrorism.
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