By CHAD HEMENWAY, Advisen Managing Editor
“Incredible disappointment” is echoing within the insurance industry as Congress has chosen to adjourn without reauthorizing the Terrorism Risk Insurance Act.
The federal terrorism insurance backstop is set to expire on January 1, 2015. Without the law in place, businesses affected by a major terrorist attack after this date could be left without insurance.
The law was enacted first in 2002 following the terrorist attack on 9/11, which caused losses of nearly $25 billion. Faced with the realization of this potential for enormous loss, the terrorism insurance marketplace significantly shrank. The backstop — renewed twice in 2005 and 2007 stabilized the market.
“I think this was a surprise to many,” said Robert Hartwig, president of the Insurance Information Institute. “The consequences are significant.”
“One of the overlooked aspects of this law was that it made it mandatory for insurers to offer terrorism coverage,” Hartwig told Advisen. “Without the law, coverage won’t be offered or it will at a very expensive price and declined” by the policyholder.
Without the backstop, insurers will once again reassess exposures and likely pull back from terrorism risk coverage, endangering the ability to recover after a large terrorist attack.
January 1 is a big renewal date, and many policies signed before the law’s sunset contained provisional terrorism coverage. It would be there if TRIA was renewed, but terrorism risk would be excluded if the bill restarting the act expired, Hartwig said.
“By letting TRIA lapse, Congress has failed to protect taxpayers and the economy,” said the American Insurance Association in a statement. The AIA as well as other trade associations from insurance and other industries had been lobbying Congress for years in order to keep the federal backstop in place.
Carolyn Snow, president of RIMS, said it and other organizations “have been pushing Congress to pass an extension for the past two years but Congress senselessly ignored those concerns and waited until the very last moment. This delay has ultimately led to the worst possible outcome.”
Though version of a TRIA reauthorization were passed overwhelmingly in the Senate and House, a joint bill could not be agreed upon. The Senate failed to persuade retiring Sen. Tom Coburn, R-OK, to lift his hold on the bill. Coburn did not want one provision in the measure — to recreate the National Association of Registered Agents and Brokers — to be included.
“Right now I’d say everyone is still reeling, and are having a difficult time understanding why the cloture clock wasn’t started,” said Joel Wood, senior vice president of government affairs for The Council of Insurance Agents & Brokers, in an interview with Advisen. “Sen. Coburn’s effort to roll back NARAB would have been easily overwhelmed by a vote.”
The potential expiration will also affect the real estate market. Banks require terrorism insurance in order to secure or refinance a loan.
Robert G. Morris, president of insurance brokerage The Rampart Group, told Advisen he has already received telephone calls from panicked clients.
“They have a lot of questions and I don’t have a lot of answers,” he said. “Right now, they can’t buy a piece of property.”
Morris said there is nothing to do but wait to see how the dust settles.
“There is plenty of money in the insurance industry right now but that doesn’t mean [carriers] are going to go out and take this risk,” he explained. “They will go to the reinsurance marketplace and see what they can do. You’ll see capacity shrink. It’ll be very expensive.”
It should not go without mentioning the impact on workers’ compensation. Terrorism risk cannot be excluded from WC policies, but policyholders facing renewal can expect higher rates or potential nonrenewal by an incumbent insurer after it gets through with managing exposures left wide open by TRIA’s sunset.
The Coalition to Insure Against Terrorism, made up of businesses and organizations throughout the real estate, manufacturing, utility, construction, transportation, sports, entertainment and retail sectors, said it was “incredibly disappointed” in the Senate.
“This is a bipartisan failure; the 113th Congress has let down American workers, American businesses and jeopardized US economic and national security. CIAT urges the new Congress to make TRIA reauthorization its top priority in January and immediately vote to extend the program for the long-term,” the group said in a statement.
“The coalition of industry and policyholder organizations will regroup and figure out next steps,” CIAB’s Wood said. “I certainly hope that this is a setback, not an end to the program, and still can’t believe we won’t find a way. In the meantime, we are so deeply disappointed by the dysfunction this represents.”
According to information compiled by the Insurance Information Institute about 60 percent of US businesses buy terrorism but industries responsible for much of the country’s critical infrastructure, such as power and utilities, telecommunications and healthcare, along with financial institutions and local governments have higher take-up rates.
The rate for workers compensation is effectively 100 percent, meaning that every worker in America is protected against injuries suffered as a result of a terrorist attack.
Willis: Willis is extremely disappointed and surprised in Congress’ failure to authorize an extension of TRIA. This has the potential to create serious disruption for many Willis clients who depend on the backstop for property, liability, workers compensation and captive insurance programs. Willis is actively working with clients and carriers to determine alternative options in what is currently a very fluid environment.
The biggest concern right now is that clients will need help in reevaluating their risk exposures according to the changed environment where TRIA is no longer available as a back stop for the insurance market place. Of particular concern is where clients have loan covenants that determine the type and amount of terrorism insurance coverage that is required.
At present there is not a consistent approach from the insurance carrier community and, as such, we recommend that clients work closely with their Willis Representative in ensuring adequate coverage is in place. There does remain a vibrant stand-alone terrorism solution which can be explored once clients have evaluated their needs.
ACE Group Chairman and CEO Evan G. Greenberg: Congressional failure to approve the renewal of TRIA legislation is deeply disappointing. It was simply irresponsible for our elected officials to adjourn without reauthorizing TRIA. By letting TRIA lapse, they have exposed our economy and our society to the threat of severe economic uncertainty in the event of a significant act of terrorism. I sincerely hope this is the first order of business for the new Congress.
Marsh &McLennan Cos.: We are working closely with our clients to assess this fluid situation and identify constructive solutions for their businesses. At the same time, we continue to directly engage with Washington policymakers and industry trade associations to stress the importance of quickly addressing TRIPRA’s reauthorization in the new Congressional session.
RIMS President Carolyn Snow: We are extremely disappointed that Congress failed to pass an extension of TRIA, despite strong bipartisan support. The program’s expiration will have many negative repercussions for commercial insurance consumers, the countless organizations they represent and the U.S. economy as a whole.
Congress allowed a program to expire that has proven to be a success. Since its inception, TRIA has stabilized the marketplace by providing adequate capacity at affordable rates. Its expiration will almost certainly cause rates to rise, placing many lending agreements in jeopardy and forcing some organizations to self-insure or simply go without.
National Association of Mutual Insurance Companies President Charles Chamness: There is no good reason that a program so vital to our nation’s economy be allowed to lapse. The country deserved better. We have 14 days left until the program expires; if they won’t return on their own, the president should call them back to town to finish their job.
NCOIL President Sen. Neil Breslin: NCOIL is deeply troubled by the reality that TRIA now will expire as of January 1. Terrorism in this country is a real and growing threat. NCOIL believes it is imperative that policymakers take necessary action to ensure that this nation can recover if the unthinkable happens—and a federal backstop for terrorism risk is critical to ensuring that this country can. We urge Congress to swiftly pass TRIA-reauthorizing legislation upon convening next year.
Aon: Since its passage over a decade ago in the wake of the 9/11 terrorist attacks, TRIA has stabilized the insurance markets by fostering certainty, lowering the risk of investment and increasing much-needed capacity for American businesses. With the pending expiration of TRIA, Aon is working with clients to clarify the impact on their businesses and the insurance markets as they plan for 2015 policy renewals.
Round-up and Implications of TRIA expiration by Professional Insurance Agents: Terrorism Risk Insurance Act expected to expire
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
