TRIA Little Harder, Congress!

by Wilson Elser
Contact

Insurance relies on uncertainty most of the time, so we price premiums based on events that the actuaries say are predictable en masse instead of unpredictable on an individual basis. But there is one totally predictable and possibly catastrophic event looming over the U.S. economy – one that is man-made and can be unmade, but only if Congress acts in time.

TRIA, the Terrorism Risk Insurance Act, was enacted in 2002, after the September 11, 2001, terrorist attacks, and has twice been extended, but if Congress doesn’t act soon the law will expire on December 31, 2014. Even before it expires, the lack of an extension may cause serious economic harm that will directly impact insurance consumers.

Because TRIA provides a government backstop for some kinds of truly catastrophic terrorist attacks, it has created stability in the market for terrorism insurance. The adoption rate for all terrorism coverage, which rose from 27 percent in 2003 to 62 percent 10 years later, soared on the strength of that stability. (See “Impending Expiration of TRIA – A Race to the Finish Line?” Deloitte Services LP, September 3, 2013.)

Here’s how TRIA works: A covered terrorist event that causes $100 million or more in insured losses is eligible for TRIA protection, after a retention of 20 percent of each carrier’s annual insured premiums in the given line of business. The aggregate retention is estimated to be $27.5 billion. Above that threshold, TRIA’s coverage is for 85 percent of losses, up to $100 billion. (Nuclear attacks and some other horrific events are not covered under TRIA.) Federal payments below $100 billion are required by law to be repaid through a premium surcharge levied by the Department of the Treasury – to date there have been none.

What do those big numbers really mean? To put them into perspective, the total property losses caused by the September 11, 2001, attacks have been estimated at $23 billion. (See the March 2014 research report, “National Security Perspectives on Terrorism Risk Insurance in the United States,” published by the RAND Corporation.) The property losses from Hurricane Katrina were $47.4 billion. Dwarfing those figures, the federal government’s payouts in the American Reinvestment and Recovery Act in 2009 totaled $840 billion.

TRIA’s efficacy in stabilizing the insurance marketplace and its potential impact on U.S. taxpayers are perhaps best explained in testimony by Dr. Erwann Michel-Kerjan of the Wharton School of Economics before the Senate Committee that is considering a bill to extend TRIA on September 25, 2013. Dr. Michel-Kerjan compared the taxpayers’ possible exposure under TRIA with their actual payments toward events such as Katrina, and concluded that the TRIA model is superior because it provides a mechanism to recover at least some of the government’s payouts.

Why would letting TRIA expire hurt the economy? Existing multiyear commercial construction contracts that require terrorism coverage to be in place could go into default if TRIA is not reauthorized. We have seen during the past 30 years the overall effects on the economy of a sudden shutdown of large commercial construction projects – in the aftermath of the 1986 Tax Reform Act, the Savings & Loan debacle, and the Credit Crisis. Care to relive those days?

The insurance industry could adapt to a world without TRIA, but not all at once. And what effect would a sudden shift of market capacity to terrorism insurance or reinsurance mean for consumers of less exotic coverages? A phase-out of the law over a period of years would be one thing; what we’re facing today is quite another.

There are signs of movement in Congress, as Business Insurance  reported on March 18, 2014. But, like other “foregone conclusions” such as immigration reform, these efforts could be derailed.

It’s time to make your voice heard, whichever side of the TRIA debate you are on. The websites for the committees considering TRIA extension are linked here: Senate  House.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wilson Elser | Attorney Advertising

Written by:

Wilson Elser
Contact
more
less

Wilson Elser on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.