TRIA options as we near expiration
As we approach yet another possible extension or expiration of the Terrorism Risk Insurance Act (TRIA), set to expire on December 31, 2014, it’s a good time to revisit the details of the law and the coverage that it provides.
As a reminder the latest version of the three bills – TRIA (2002), the Terrorism Risk Insurance Extension Act (TRIEA 2006) and the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA 2008) – contains the following provisions:
- Covered loss must exceed $5 million to “qualify”
- TRIA loss must be certified by the Secretary of State, Treasury Secretary and the U.S. Attorney General
- Country loss must be in excess of $100 million in an annual period
- Individual carrier deductible is 20% of annual premium for previous year’s TRIPRA covered lines of business
- Carriers also have 15% coinsurance excess of deductibles. The remaining 85% is reimbursed to insurers by the federal government.
- Federal government payout is capped at $100B.
- Federal government recoups payout from policyholders if government payment exceeds $27.5B.
Many insurance industry groups are pushing for the Act’s extension. In a recent survey 68 percent of risk managers said they fear that allowing a federal terrorism backstop to expire would either decrease their terrorism coverage limits or eliminate coverage options altogether. Property and casualty professionals have voiced concerns over the looming expiration as well, including:
- Limited capacity in high risk areas
- Rise in premiums in these areas
- Potential reduction of coverage terms
- Difficulty from insurers in underwriting risk
- Lenders’ requirements may not be met, leading to uncertainty in economic stability
- Negative impact on stand-alone terrorism pricing rates, which are currently competitive
- Negative impact on TRIPRA captive placements
- Potential negative impact on carrier credit ratings if aggregations are not effectively managed
- Potential further increase of insurer retentions will lead to increased carrier requirements by rating agencies that could negatively impact financial ratings
Several bills have also been introduced to the U.S. House of Representatives to extend TRIPRA by either five or ten years. Studies conducted have shown there is currently voter support for an extension.
Traditional annual insurance placements with renewal dates of 12/31/13 and beyond should consider the following options in light of the possibility of changes to TRIA:
- Make sure your renewal quote clearly discloses the terrorism options
- Carriers may opt to:
- Include full coverage regardless of TRIA extension
- “Sunset” coverage in event TRIA is not extended (example: a 3/1/14 renewal includes coverage to 12/31/14 at which time coverage is reduced to a sublimit or is entirely excluded)
- If TRIA is extended insurer retentions may further increase leading to potential reduction of capacity and/or pricing changes
- Seek stand-alone Terrorism option not reliant on government backing
- Coverage is typically broader
- Coverage can be cost-effective and is currently competitive
- Breadth of coverage and deductibles are negotiable
- Coverage is available on a worldwide basis
- Multi-year coverage may be available
- Locking in advance of potential expiration will be a significant advantage
If the past performance by the government is any indicator, we will most likely be waiting for a decision up until the last month, if not days, of the current act’s expiration. Taking the time now to explore the different options will prepare your company and help to diminish and avoid uncertainty and chaos as we head into the new year.
About the Author
Mary Broderick is a Senior Vice President and Leader of WGA’s Property Practice. Ms. Broderick is responsible for the design and implementation of complex property insurance programs for WGA’s corporate clients’ and has many years of experience working with complicated Business Interruption (BI) and Contingent Business Interruption (CBI) issues.