The Risk & Insurance Management Society (RIMS) is pushing the U.S. government to maintain support for the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA).
In a letter to Federal Insurance Office Director Michael McRaith, RIMS stressed the importance of a federal support for terrorism reinsurance capacity.
“The Federal financial backstop for terrorism risk must be maintained,” said RIMS President Deborah M. Luthi in the letter. “The past ten years have demonstrated that the private sector alone is not able to sustain a competitive and healthy market for terrorism risk insurance. While property exposures are one beneficiary, the transportation, special and sporting event and manufacturing sectors also need terrorism coverage. This letter serves as a reminder to FIO of the importance of TRIPRA while reinforcing RIMS’ support for its reauthorization next Congress.”
The Terrorism Risk Insurance Act (TRIA) was signed into law in November 2002 as a temporary measure to allow time for the insurance industry to develop solutions for terrorism coverage. The Act was set to expire on December 31, 2005 but was extended that year for two years. In 2007, days before the new, extended deadline approached, the Act was extended under TRIPRA until December 31, 2014.
“Prior to enactment of TRIA, terrorism insurance was very difficult to buy, and not enough coverage was available to satisfy the needs of property owners. Construction contracts were similarly constrained. Owners of large portfolios of real estate in urban areas had great difficulty in finding coverage, and what was available was priced exorbitantly high. In many instances, the increase in insurance premiums made the property unprofitable to the owner, with expenses exceeding collected rents.
Today, capacity is generally not an issue, but continues to be a challenge for risks located in major metropolitan areas, including New York, Chicago, San Francisco, Boston and Washington, D.C. As insurers monitor their aggregate liability in these particular areas, the purchase of adequate insurance can be difficult in very dense, urban areas. RIMS witnessed in 2002, with the passage of TRIA, an increased number of insurers willing to write the coverage and provide higher limits needed for these high-risk areas. However, the amount and cost of coverage available for high-risk locations continues to vary greatly based on the location of the insured and the aggregation of risk in that particular area.
And while we always think of property exposures as the primary beneficiary of terrorism coverage, many other businesses and public entities face terror exposures. Public and private transportation, special events and sporting events, and certain manufacturing exposures need terrorism coverage to name a few. Further, as a direct result of the 9/11 losses, employers need terrorism cover for their aggregated workers compensation exposures in large metropolitan areas.”
Luthi added that a July 2012 survey of RIMS members fund that 85 percent believe Congress needs to reauthorize TRIPRA and that without another long-term extension, issues regarding affordability and availability would surface again.
In the letter to the U.S. Department of the Treasury, RIMS also highlighted its opposition to proposals that would place restrictions on domestic insureds which cede reinsurance to foreign affiliates. The full letter is available online. (PDF)
Jill Dalton, a partner at Dempsey Partners, is an expert on terrorism risk and testified before Congress before the most recent extension of TRIA. She said the status of the Act will depend a lot on the results of November’s presidential election.
“The businesses need the coverage and if insurance companies aren’t willing to provide the coverage on their own, then yes, it should be a permanent thing,” she told ILSTV. “But, if insurance companies are willing to take the risk themselves without the benefit of the backstop, then the government doesn’t need to be involved. It’s very, very big risk. After 9/11, the insurance companies were not willing to take that risk themselves.”