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Proposed Cuts to TRIA Funding Creates Uncertainty in Terrorism Insurance Market

Source: Marsh

Posted on 21 Apr 2010

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The proposed 2011 budget released by the Obama Administration includes a reduction in federal support for the Terrorism Risk Insurance Act (TRIA).

The proposed budget amendments to TRIA include:

* increasing the deductible to be paid by insurers;

* increasing insurer co-participation;

* increasing the event trigger (insurer retention level);

* removing coverage for acts of domestic terrorism (an act committed by a U.S. citizen, on U.S. soil); and

* reducing the recoupment percentage from 133 percent to 100 percent.

As clients consider the appropriate level of coverage to purchase, they must now determine how longer term changes to TRIA may affect terms and available coverage.

"Immediately after the release of the budget, Marsh's experts verified that there is no appetite in Congress to make any changes to TRIA," noted Tarique Nageer, Marsh's Property Specialized Risk Group. "So, it seems unlikely this provision in Obama's proposed budget will gain traction."

"However, companies should keep abreast of developments and how potential changes may affect their terrorism coverage," Nageer cautioned.

"An alternative to TRIA, stand-alone terrorism insurance, remains a variable market solution," explained Ben Tucker, team leader of Marsh's Property Specialized Risk Group.

"Dozens of insurers offer a theoretical maximum capacity of approximately $3.75 billion. Rates are competitive and, at times, more competitive than pricing of embedded terrorism in property programs. Although capacity is relatively stable, it can vary, primarily due to location of risk, insurer’s accumulation of exposure, concentration of exposure, and market capacity."