The US Department of the Treasury (Treasury) published an official notice on November 10, 2020, seeking comments from interested parties on proposed new rules promulgated under the latest version of the Terrorism Risk Insurance Act (TRIA). TRIA was first enacted in 2002 as a temporary government program to provide a federal backstop for certain insured terrorism losses. The act has been amended and extended multiple times since then, most recently in 2019, when the Terrorism Risk Insurance Program (TRIP) was extended until December 31, 2027.
Treasury is seeking comments on certain aspects of the 2019 legislation, including whether any amendments are necessary to the timeframe and process by which Treasury certifies that a covered act of terrorism has occurred—for example, allowing third parties to petition for certification or imposing mandatory timeframes for Treasury to certify an event. Such changes, if implemented, would remove some of the government’s discretion in whether/when to certify that a covered terrorist event has occurred, and could have a meaningful impact on how TRIA might work in practice. Treasury also seeks comments as to whether there should be coverage under TRIA for non-US cyber-related terrorist events that cause losses within the United States, and whether it would be appropriate to change current reimbursement formulas that are thought to favor captive insurers over traditional insurers.
It is interesting, however, to compare and contrast Treasury’s proposed changes with those recommended earlier this year by the Advisory Committee on Risk-Sharing Mechanisms. The Advisory Committee was created by the 2015 reauthorization of the TRIA legislation to provide advice and recommendations on the creation of private market terrorism risk-sharing mechanisms, and its membership constitutes industry thought leaders. In addition to the issues identified by the Treasury in its November 10 notice of proposed rulemaking, earlier this year the Advisory Committee also recommended in its Report in May 2020 that Treasury and/or the Federal Insurance Office (FIO) consider a wider range of issues, including:
- Whether the current $100 billion cap on federal payments should be indexed, particularly in light of evolving loss models for Nuclear Biological Chemical and Radiological (NBCR) events
- Whether industry retention levels also ought to be indexed
- Whether mandatory recoupment levels (now at 140% of insured losses) and amounts ought to be modified to reverse or reduce the shift in financial responsibility for TRIP losses from the government to policyholders and to study the possibility that for certain terrorism events the federal government might actually make money from recoupment payments.
It appears from the current proposed rule that Treasury/FIO will not be examining these and other issues identified by the Advisory Committee at this time.