CIAT Urges Renewal of Terrorism Risk Insurance Act

With the Terrorism Risk Insurance Act set to expire (again) at the end of 2020, the House Financial Services Committee isn’t wasting time in pushing its reauthorization. And neither is the Coalition to Insure Against Terrorism, of which the Mortgage Bankers Association is a member.

In a letter submitted this week to the Committee for an Oct. 16 hearing, CIAT urged support of H.R. 4634, a 10-year “clean” reauthorization bill introduced by Chair Maxine Waters, D-Calif., with 27 co-sponsors (https://www.congress.gov/bill/116th-congress/house-bill/4634?s=1&r=34).

“The TRIA Program has been, and remains, extremely effective in achieving its primary purpose, which was to stabilize the market following 9/11 and to ensure the continued availability of terrorism coverage for commercial policyholders in the future,” CIAT said. “America needs a stable and reliable terrorism insurance market so that employers can invest in assets and create jobs without assuming the risk and liabilities of a terrorist attack.”

Congress passed TRIA in 2002 following the September 11, 2001 terrorist attacks, which resulted in estimated insured losses of more than $45 billion, the largest insured losses from a non-natural disaster on record.

Prior to 9/11, terrorism coverage was generally included in commercial insurance policies without a separate charge for its inclusion. However, due to the catastrophic losses that insurance and reinsurance companies sustained as a result of the 9/11 attacks, the insurance industry began to exclude or deny coverage for terrorism risk altogether, making this coverage unavailable or extremely expensive. MBA and other industry groups warned the disappearance of affordable terrorism risk coverage would negatively affect the larger U.S. economy due to the importance of commercial insurance in a variety of business transactions.

TRIA established the Terrorism Risk Insurance Program within the Department of Treasury to provide federal reinsurance in the event of catastrophic losses. TRIA was originally intended to be a temporary fix to “allow for a transitional period for the private markets to stabilize.” However, CIAT, insurers and other stakeholders have continued to advocate for the need for TRIA to maintain stability in the market and ensure the availability of affordable terrorism risk insurance. Congress reauthorized TRIA three times since its enactment, in 2005, 2007 and 2015. TRIP is now set to expire at the end of December 2020.

CIAT is a broad coalition of commercial and non-profit insurance consumers formed immediately after 9/11 to ensure that all American businesses could obtain comprehensive terrorism insurance. The diverse CIAT membership represents commercial real estate, banking, energy, construction, hotel and hospitality, higher education, manufacturing, transportation, entertainment, the major league sports and racing, as well as public sector buyers of insurance. In its letter, CIAT warned terrorism “continues to pose a clear and present danger” to the nation and to the American economy.

“According to the Department of Homeland Security, the U.S. now faces one of the most challenging threat environments since 9/11,” CIAT said. “There is no homeland security without economic security. One of the stated aims of terrorists is to disrupt our economy.”

The letter emphasized TRIA remains effective in ensuring availability of terrorism coverage. “At almost no cost to the taxpayer, the Program has been the key factor in ensuring that the private insurance market has remained intact and continues to meet the needs of commercial policyholders during the on-going threat of a future terrorist attack–all while minimizing federal taxpayer exposure,” it said. “In fact, TRIA is designed to ensure that taxpayer exposure steadily shrinks over time. The key elements of TRIA that establish private market exposure–the insurer deductible and the insurance marketplace aggregate retention amount (IMARA)–are already effectively indexed to premium growth at both the insurer and industry level, and the federal share will continue to decrease, as it has since the program’s inception, in future years even if Congress made no changes to the TRIA statute beyond a straight extension.

CIAT emphasized there has been no evidence that private markets can develop adequate terrorism risk capacity without some type of federal participation. “Acts of terrorism are man-made, infrequent and potentially catastrophic, which means quantitative risk models can’t be used to accurately analyze terrorism risk,” the letter said. “These tools only work for exposure to natural disasters, such as hurricanes, where there is extensive loss experience. Terrorism has no season, no region and no reliable pattern.”

Without TRIA in place, the letter said, “we believe the availability of terrorism insurance will dramatically diminish, or insurers will simply stop offering the coverage altogether. CIAT members have seen evidence of this each time that TRIA has been up for reauthorization (most recently in 2014). In each instance, policy renewals often included “springing exclusions” which would have voided terrorism coverage upon the expiration of TRIA. Should the Program be allowed to sunset, we would expect a period of profound economic slow-down–posing a very real threat to our economic and homeland security.”

CIAT continues to believe that TRIA has been a tremendous success,” the letter added. “It is a comprehensive plan to provide for economic continuity and recovery in the wake of a major terrorist attack, while simultaneously protecting taxpayers via a mandatory recoupment mechanism and declining federal exposure.”