House TRIA Draft Boosts Event Trigger, Deductibles; Formal Intro Likely This Week

June 13, 2014 by Liz Festa

The formal introduction and markup of proposed House legislation to renew the Terrorism Risk Insurance Act (TRIA) is expected the week of June 16, giving the industry hope something will move toward enactment before the August recess, although no one has said what they see is particularly pretty.

But industry representatives do say it is necessary and all would welcome a hearing on the bill as early as this Thursday, if that can be managed by the House Financial Services Committee.

The House Financial Service Committee didn’t release or comment on any date, but an aide there did acknowledge introduction of the bill was likely early next week. There was talk of a mark-up on June 19, but given the changing of the guard in the House with Rep. Eric Cantor, R-Va. giving way to a new majority leader, that is not set yet.

The House discussion draft, released Wednesday, June 11, incrementally slides the insurance industry cost burden for terrorism acts year by year toward a $500 million conventional terrorism trigger in 2019, and raises from current deductible level for insurers to 20 percent from 15 percent in TRIA-lines by 2019.

Nuclear, chemical, biological and radiological terrorism (NCBR) would stay the same at a $100 million loss event cost trigger and a 15 percent deductible or co-share. In addition, NCBR would refer to only acts of terrorism that involve the release of radioactive material or poisonous biological or chemical material, not any catastrophic cyber or other attack not involving these agents.

The Senate bill, which advanced out of the Senate Banking committee in June, would renew the program for seven years instead of just five. However, the Senate legislation increases the program’s recoupment or co-share by $10 billion, $2 billion per year over five years, to $37.5 billion. This mandatory recoupment amount is said to be about 20 percent of net written premium for TRIA coverage.

The Senate bill also increases the insurer co-share from 15 percent to 20 percent over a five-year phase-in period. But the trigger stays at $100 million in the Senate version.

In the House bill, the Treasury Department would play an increased role with new data collection requirements. These would require insurers to submit data starting in 2016 on information about lines of insurance with exposure to terrorism losses, premiums earned on the coverage pricing, take-up rate, amount of private reinsurance for the acts, geographic location of exposures and “any other matters as the Secretary considers appropriate.”

The House draft also creates an industry advisory committee appointed by the secretary of the Treasury to encourage the development of private market risk-spreading mechanisms—to alert insurers if they aren’t already exploring ways to mechanisms to privately reinsure the terrorism losses that aren’t reimbursed by the federal government. Examples of mechanisms cited in the draft include mutual reinsurance facilities and capital markets instruments.

Some privately worry that widening the insurance industry’s responsibility for terror losses will force insurers to limit exposure or ratchet up pricing, thereby squeezing capacity and leaving the federal government on the hook for even more than it might have bargained for when trying to create a smaller government role.

Yet “the Congress finds that it is desirable to encourage the growth of nongovernmental private market reinsurance capacity for protection against losses arising from acts of terrorism,” the House draft states.

While the top 20 or so very large companies may be able to absorb the higher terrorism event trigger of $500 million, smaller companies that cannot absorb it may opt out of the program.

Insurers say that the diversity of multiple companies underwriting risk is good for the market, and even the industry behemoths watch their concentrations in major risk centers, like cities, for terrorism events.

They also say they can work with both House and Senate bills (S. 2244 passed out of Senate Banking Committee earlier this month 22-0), but are concerned with less terrorism coverage offered overall—with the trigger so high and the increased co-pay atop that.

The American Insurance Association stated it is “pleased that House Financial Services Committee leadership is moving the legislative process forward. We do however remain concerned with any potential provisions such as a bifurcated approach on NBCR and increases in the program’s trigger and co-share that could lead to decreased market capacity,”

Higher retentions on companies could end up hurting their individual ability to offer insurance coverage to U.S. businesses, including terrorism risk coverage, insurers have argued, although it looks like there is not much appetite in Congress to pass something that is not noticeably leaner than the current extension of the 2002 Act.

TRIA was first authorized in 2002 following the terrorist attack of September 11, 2001. It was subsequently reauthorized in 2005 and 2007 with broad bipartisan support, and is scheduled to sunset at the end of this year.

Patricia Henry, executive vice president of global government affairs at multinational giant ACE Group, focused on getting some finality to the renewal process. She said that ACE is encouraged that both the House and the Senate are making progress on this legislation.

“We encourage Congress to extend TRIA before the August recess to give policyholders the certainty they need. Waiting until November or December prolongs the uncertainty, is disruptive and has a real-world impact for policyholders,” she said.

Nat Wienecke, Property Casualty Insurance Association of America’s senior vice president, federal government relations, also stressed the importance of getting TRIA renewed quickly.

“I am encouraged by the release of the House draft proposal. We are working with members on both sides of the aisle to bring legislation forward as quickly as possible. It’s urgent that Congress move quickly to finalize legislation and send it to the President for his signature before the August recess,” Wienecke stated.

Erick Gustafson, vice president and global head of government relations for global broker Marsh & McLennan Companies, Inc. (MMC), said the New York-based company is very pleased that House Financial Services Committee Chairman Jeb Hensarling, R-Texas, is working to extend this important public-private partnership and respects his goals for its reform.

MMC is analyzing the effect that a higher trigger would have on policyholders and carriers. Of interest, MMC also hopes to see the House legislation include brokers in the collection of data.

The President’s Working Group on Financial Markets showed global brokers have great insight into insurance markets, he noted.

The Obama Administration supports and budgets for TRIA renewal and would likely not turn down an opportunity to collect data.