TRIA update: November elections could shape the law’s future
With TRIA set to expire on 12/31/14, the future of terrorism coverage remains among the most highly-anticipated and talked-about issues throughout the insurance industry. As we enter the final quarter of 2014, insurance carriers are facing uncertainty about how coverage will be handled should the act not be reauthorized. With Congress not back in session until mid-November, the clock is ticking for lawmakers to come up with a solution before the end of the year. Based on discussions with insurance professionals and carriers, one of the following three scenarios will likely determine the future of TRIA.
- Program Termination: If TRIA expires without an extension or a replacement, the commercial insurance marketplace would revert to determining terrorism insurance coverage rates. Studies show that in areas where terrorism risk is high (such as major cities), the domestic commercial insurance marketplace will evaporate. This is due to the fact that domestic commercial carriers will be unwilling to take on the catastrophe potential. While the London market can serve as an alternative option, the deductibles for these policies are extremely high and carry significant co-insurance percentages. Finally, pricing will increase substantially for TRIA coverage. This in turn would affect lending agreements, which may not fully meet TRIA requirements. For larger risks, onshore captives are a possible solution since they are considered ‘insurers’ subject to TRIA, however offshore captives are not and would not offer protection.
- A short term extension: Passing a short term extension would be a clear signal that Congress cannot come together on a consensus and deal with the TRIA issue. A short-term extension would most likely come from a no confidence in the House, and cause an adverse reaction from the insurance industry.
- A straight extension: this is probably the best available option, but it could be held up due to Congressional gridlock over some major changes in proposed extensions of the bill, including:
- In July, the Senate passed a seven year extension with a copay increase from 15% to 20% and the repay to the federal government would jump from $27.7 billion to $37.5 Billion.
- The House Committee has recommended (but does not have the votes) to pass a five year extension, streamline the certification process to declare an act as a terrorist attack, introduce a small insurer opt out (w/o defining small), and create two TRIA programs:
- The first would cover Nuclear, Biological, Chemical & Radiological events. Currently, insurers are not required to offer NBCR under TRIA, so this would create a new market for the coverage. Unfortunately, industry studies show very few commercial carriers willing to provide this coverage.
- The second would be keep the current TRIA version in place. However the program trigger would go from $100 million to $500 million expecting the commercial insurance market to fill the void.
A lame duck Congressional session could pass an extension, which has been the case with previous versions of the bill. With House Democrats and Republicans at odds over the latest version of the House Committee’s proposal, it looks like the November elections will have the biggest impact on what happens with TRIA. Stay tuned, as WGA will continue to provide updates on the issue as the extension draws closer.
About the Author
David Bardelli is a Senior Vice President and the Casualty Practice Leader for WGA. David has extensive knowledge with casualty risks, including technology healthcare, business services and miscellaneous manufacturing groups of all sizes.