Terrorism insuranceBusinesses welcome TRIA extension, but small insurers worry about reimbursements

Last week, the property insurance, real estate, and financial services industries applauded Congress for passing the recent version of the Terrorism Risk Insurance Act (TRIA), which President Barack Obama is expected to sign into law. “We applaud a strong collaborative effort by Congress to pass this bipartisan legislation critical to taxpayers and our national economy,” said Financial Services Roundtable president and CEO Tim Pawlenty. “We hope this paves the way for more bipartisan work in Congress and that President Obama will sign the bill quickly into law.”

The original TRIA bill was initiated shortly after the 9/11 attacks to provide a federal backstop to protect insurers in the event an act of terrorism results in losses above $100 million. In that bill, if insurers’ losses remained under $27.5 billion, the federal government would recover its contribution via surcharges on all property and casualty policies, while losses totaling more than $100 billion would be covered by the affected policyholders.

TRIA has already been extended twice and the most recent version of the bill will, beginning in 2016, raise the federal coverage backstop from $100 million to $200 million by 2020 with an increase of $20 million per year. Insurance Journal notes that the new TRIA will also increase the amount the federal government will recoup from $27.5 billion to $37.5 billion over a five year period beginning in 2015.

“The Senate’s overwhelming bipartisan vote today following yesterday’s nearly unanimous House vote and the anticipated swift signing of H.R. 26 by the President assures the markets that the terrorism risk insurance program will remain in place protecting our nation’s economy, policyholders and taxpayers. Congress’ timely reauthorization of TRIA will preserve a well-functioning private terrorism insurance marketplace,” said Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), after the Senate vote.

The Senate passed the bill to extend TRIA for another six years with a 93-4 vote. Senators Maria Cantwell (D-Washington), Marco Rubio (R-Florida), Bernie Sanders (I-Vermont), and Elizabeth Warren (D-Massachusetts) voted against the bill. Warren rejected a provision in the TRIA bill that amended the Dodd-Frank Act to exempt agricultural and energy companies from having to post collateral for swaps traded directly with banks.

The bill also includes the creation of the National Association of Registered Agents and Brokers (NARAB II), intended to make it easier for insurance agents and brokers to sell policies across state lines. “The Big ‘I’ is proud that all our hard work on TRIA and NARAB II has come to fruition and will benefit thousands of small businesses and insurance consumers across the country,” said Bob Rusbuldt, Independent Insurance Agents and Brokers of America (Big “I”) president and CEO. The “bipartisan action by the Senate on both TRIA and NARAB II, in one of the first acts of the new Congress, represents a culmination of years of hard work of the Big ‘I’ and our small business members, and I offer our members a sincere and heartfelt congratulations. Long awaited reform on non-resident licensing for agents is finally coming,” Rusbuldt said.

Standard and Poor’s (S&P) welcomes the passing of TRIA through both houses of Congress, but cautions that the bill could hurt small insurers. The company is concerned that small insurers may not see any TRIA reimbursements with the doubling of the federal coverage backstop to $200 million. Smaller insurers’ “overexposure to terrorism risk that is less than their TRIA deductibles and within their co-insurance could be exacerbated by this amendment to this earlier program,” S&P warned. Still the extension of TRIA adds stability to terrorism coverage, and changes made to the new TRIA bill are not large enough to cause a disruption in insurance markets, the firm wrote in a press release.