Home > Property & Casualty > TRIA: Planning ahead to be prepared for 12/31

TRIA: Planning ahead to be prepared for 12/31

riskWith the Terrorism Risk Insurance Act (TRIA) set to expire on December 31, 2014, buyers and carriers of terrorism insurance must be on the lookout for marketplace changes and disruption if Congress opts to let the federal backstop program expire. As speculation continues about the Act’s renewal, the terrorism marketplace is starting to shift from one that has been relatively steady with abundant capacity to a much more aggressive and opportunistic arena. Experts say that the Act’s uncertainty means stand-alone rates could also jump by at least ten percent, while embedded terrorism insurance rates could potentially spike if the U.S. Government halts TRIA coverage.

TRIA (now known as the Terrorism Risk Insurance Program Reauthorization Act, or TRIPRA, of 2007) deals exclusively with losses arising from acts of terrorism that are within the parameters of specifications defined in the Act. In order for coverage to trigger, a terrorism act must result in more than $5 million in loss within certain specified lines of insurance to all injured parties as a group (“aggregate industry loss”). Lawmakers originally intended for TRIA to be a temporary measure to nurture the emergence of private market solutions as a result of 9/11, but the industry has yet to see a fully developed program that meets the needs and requirements of clients (particularly with risks in metropolitan “target” areas) in the absence of a federal backstop program.

Due to a rising demand for terrorism insurance in areas of political instability like the Middle East, Brazil and Russia, capacity limits are starting to drive rates upward. Insurers have written about $3 billion is coverage for the 2014 Olympics in Sochi, Russia, and while cancellation and abandonment coverage accounts for a significant portion of the costs, the heightened threat of terrorism has become a real factor for buyers and insurers to consider at this year’s games. Following several public threats made to national Olympic federations, risk analysts say the threat of an attack is greater than ever before at these games. Russia also experienced a 75% increase in the number of terrorist attacks in 2013, causing real concern about the vulnerability and exposure in Sochi. With this said, as we progress through the games without incidence, this should have a positive effect on the market.

While Congress is unlikely to make any decisions regarding TRIA until late in year, it’s never too early to plan ahead. Furthermore, the non-renewal of TRIA affects not only property insurance lines, but also builders risk, liability and workers compensation markets. The latter is especially vulnerable, since workers compensation policies won’t be able to exclude terrorism coverage if the Act is not renewed, which could potentially lead underwriters to exit the market completely. As a result, buyers may be forced to look for coverage in a state fund or alternative market.

As a reminder from our last blog on this topic, we suggest 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:

        1. Make sure your renewal quote clearly discloses the terrorism options.
        2. If your renewal occurs after July, reach out to your carriers early to understand their position if the Act is not passed. Get alternative options in the first half of the year to avoid last-minute uncertainty.
        3. Carriers may opt to:
          • Include full coverage regardless of TRIA extension. Markets such as FM Global are working on reinsurance options with Berkshire Hathaway and others in an effort to provide certainty to insured’s beyond 12/31/14.
          • “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)
        4. If TRIA is extended insurer retentions may further increase leading to potential reduction of capacity and/or pricing changes.
        5. 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 significant advantage

We strongly suggest insurance buyers to plan ahead! If your renewal is in the second half of the year, we advise to seek options now to avoid potential shrinkage of capacity that will result in higher pricing.

Taking the time now to explore the different options will prepare your company and help to diminish and avoid uncertainty and chaos as we move closer towards the Act’s 12/31/14 expiration.


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.

617.204.6709 | MBroderick@wgains.com | Connect with Mary on LinkedIn
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