Marsh report highlights need for TRIA reauthorization

Without a reauthorization by Congress of the Terrorism Risk Insurance Program, policyholders could be faced with higher premiums as capacity shrinks for terrorism coverage.

According to Marsh’s 2014 Terrorism Risk Insurance Report, the uncertainty surrounding the future of the federal backstop for terrorism insurance is already affecting the P&C insurance market buyers and sellers.

Workers’ compensation carriers are evaluating books of business to assess what they will look like without TRIA if it is allowed to sunset as scheduled at the conclusion of 2014. Some have stopped underwriting risk of certain employers in high-profile industries with many employees in certain major cities such as New York, Chicago, Washington and San Francisco, Marsh reported.

Without TRIA, Marsh predicted some last-resort markets could see an increase in applications.

Additionally, Marsh found nearly half of surveyed property insurers said they will not offer standalone terrorism coverage if TRIA expires. In 2014, many policies (57 percent) have been endorsed with sunset clauses and Marsh’s survey found 48 percent of property insurers will not offer stand-alone terrorism coverage without TRIA.

“The Marsh report confirms that TRIA has provided marketplace stability over the last few years as evidenced by the consistently high take-up rates (62 percent in 2013, Marsh found),” said Leigh Ann Pusey, president and CEO of the American Insurance Association.

She said the report confirms “TRIA provides the stability and certainty that enables a private terrorism risk insurance marketplace to exist, and any unease about the continuation of the partnership will generate market volatility and concern about viability absent the partnership. ”

A bill from to reauthorize TRIA has been introduced by the US Senate Committee on Banking, Housing and Urban Affairs. Therefore, the industry’s concern has moved somewhat from lobbying for the measure to focusing on what it could look like if approved.

Beyond looking at the market impact, Marsh also offered commentary on some aspects of the definition of a terrorist attack–a provision of TRIA brought to the forefront following the Boston Marathon bombings in April 2013. The attack was never classified an act of terrorism under TRIA’s requirements.

For the TRIA backstop to be triggered, an attack needs this classification and losses must exceed $5 million.

“This highlights the need for a reauthorization bill to include a streamlined [TRIA] certification process that can clarify what type of event may or may not be certified, and the time frame for certification after an event occurs,” Marsh said.

The broker also address cyber terrorism. There is no clarity in the current bill on whether TRIA would cover a cyber terrorist attack.