Those who back renewing the Terrorism Risk Insurance Act, or TRIA, got shot in the arm on April 17 from federal regulators who have concluded that the private market can’t provide reinsurance for terrorism at the same level currently offered by the government.
What’s more, they believe the market would become stunted without TRIA in play.
The President’s Working Group on Financial Markets (PWG) came to that conclusion in a new report, a finding that could help build momentum for TRIA renewal. Part of the reason is timing. It follows bipartisan legislation introduced in the Senate on April 10 that would extend the law and has better support than some previous House efforts.
PWG members include the Chairman of the Board of Governors of the Federal Reserve System, the Chair of the Securities and Exchange Commission and the Chairman of the Commodity Futures Trading Commission. The Secretary of the Treasury chairs the PWG, and that federal department announced the report findings.
Some have wanted the private market to shoulder more of the burden of terrorism risk reinsurance. But the PWG report concluded that “although a private reinsurance market for terrorism risk exists, the market is supported by limited capital and coverage has not been available in amounts approaching that afforded under TRIP,” referring to the Terrorism Risk Insurance Program enabled by TRIA.
On top of that, the report points out that “according to some industry estimates, as little as $6 billion to $8 billion of global reinsurance coverage is available for terrorism risk in the United States. Moreover, the scope of coverage available from the private reinsurance market has been narrower in comparison to coverage available through TRIP.”
At the same time, the PWG report also concluded that insurance for terrorism risk is available and affordable right now, a circumstance that hasn’t changed much since 2010. The report noted that while prices for terrorism risk insurance vary depending on the industry and the location of risk, TRIA has helped reduce those prices. Also, take-up rates have approved since TRIA’s adoption.
As Congress debates whether to extend TRIA again, it is also worth noting that the report accepted there has been some market tightening, due to uncertainty as to if and when such a vote will be made to extend TRIA.
Industry reaction was swift from both carriers and agents.
Leigh Ann Pusey, president and CEO of the American Insurance Association, said in a statement that the report confirms that the private market can’t provide terrorism risk coverage at levels TRIA offers. She also asserted that “the partnership created by TRIA has enabled a private market to exist that has provided the certainty and capacity needed while also protecting taxpayer interests.”
Charles Symington, senior vice president for external and government affairs at the Independent Insurance Agents & Brokers of America, said his association agreed with many of the PWG findings, and that “the TRIA program deserves an extension of some form in order to ensure the continued availability of terrorism coverage.”
He also pledged to keep working with the House Financial Services Committee and the Senate Banking Committee on their respective proposals.
There are at least a few House TRIA renewal bills in the pipeline. The bipartisan Senate bill disclosed April 10 would include a seven-year reauthorization of the law that was last renewed in 2005 and 2007.
TRIA, passed initially in 2002 in the wake of the Sept. 11 terrorist attacks, was designed to protect the commercial insurance market, allowing the government to step in, in part, with reimbursement after the industry faces more than $100 million in losses after a single terrorist attack. TRIA will expire on Dec. 31, 2014 if it is not renewed before then.