Terrorism Risk Insurance Program Will Expire December 31st
In an extremely disappointing development, the U.S. Senate adjourned for the year and concluded the 113th Congress without bringing S. 2244, the “Terrorism Risk Insurance Reauthorization Act,” up for a vote by the full body.
This legislation would have extended the Terrorism Risk Insurance Act (TRIA) program for six years. The U.S. House of Representatives passed this exact same measure last week with an overwhelming bipartisan 417–7 vote.
Neither the marketplace nor regulators projected the expiration of the program. Individual insurers will likely decide how to handle terrorism insurance coverage after Dec. 31, 2014 based on their specific exposures, risk diversification, capital and access to the limited private reinsurance market for terrorism risk. Insurance company decisions will also likely center on a calculation regarding the prospects for Congressional action on TRIA early next year.
Currently, many terrorism insurance policies include exclusions that stated the coverage would void coverage if Congress allowed the legislation to expire. And now, that is exactly what has happened. Many are wondering if this turn of events will force large commercial construction projects and other ‘at risk’ events and projects, to go back to their insurance company to see if they can somehow obtain coverage, but it may not be that easy.
Without the legislation as a backstop for insurers there is no ‘must-offer requirement’. It would appear that if some insurance companies decide to continue to offer some level of terrorism coverage, they will need to increase prices significantly, and that will have negative consequences on the entire marketplace.
The legislation that had been proposed, to extend the prior legislation that was originally passed post-9/11 was endorsed by hundreds of businesses associations and related entities. All of them had sent letters to lawmakers urging them not to let the legislation to expire. Most recently, 19 business trade organizations sent letters to Senate leaders, warning of the consequences of failing to pass the legislation. However, those pleas went unanswered by the Senate.
There is the real potential of economic risk associated with not having program in place. There are many inside the business and insurance communities that are speculating those building projects, civic events and other venues that are susceptible to an act of Terrorism will be faced with very difficult decision going forward.
The legislation was there to provide stability and certainty to the market against the risk of terrorism. Congress has now done the opposite. It is unknown what will happen in the coming weeks.
While it is believed that this legislation will be reintroduced when Congress reconvenes after the first of the year, as of this writing, the impact of what will happen after the legislation expires on December 31, 2014 has left all of us wondering what can be done to protect business interests and the nation’s overall economy beginning on January 1, 2015.