Legislation extending the Terrorism Risk Insurance Program for 10 years has been introduced in the U.S. House of Representatives, marking the latest proposal to extend a program the industry says is essential to ensure policies covering acts of terror can continue to be written.
Debate over whether to extend the program has heated up on Capitol Hill in the wake of the April 15 bombing of the Boston Marathon. Under current law, TRIPRA is set to expire in December 2014.
The Fostering Resilience to Terrorism Act of 2013, introduced by Rep. Bennie Thompson, D-Miss., would also add a provision on information-sharing for the insureds. Thompson serves as the ranking member of the House Homeland Security Committee.
Before the backstop kicks in, individual events must be certified as acts of terror by the Secretary of State, the Treasury Secretary and the U.S. Attorney General. Thompson's bill would designate the Homeland Security Department and not Treasury as the "lead" agency in the certification process. To date, no federal agency has certified the Boston Marathon bombing as an act of terror for purposes of terrorism insurance policies.
Insurance Information Institute President Robert Hartwig said there is no timeline for when the government has to certify individual acts of terror. But without certification, losses will be covered under the terms of typical property insurance policies purchased by businesses in Boston.
Hartwig said some businesses may be able to file business interruption claims for losses related to the bombing. However, those claims would only be covered if the losses were tied to the bombing itself. Terrorism insurance policies would not cover losses stemming from the days Boston was shut down while law enforcement officials engaged in a manhunt for two suspects believed to be behind the bombing. Estimates are not yet available for insured losses tied to the bombing. But the event is almost certain to avoid triggering requirements for the federal government to provide funds under TRIPRA.
"AIA is pleased that Rep. Thompson recognizes the need for the programs reauthorization prior to its 2014 expiration," Leigh Ann Pusey, president and chief executive officer of the American Insurance Association, said in a statement. The industry has argued that without the program, fewer insurers would be willing to offer coverage to "trophy properties" that could become the target of a terrorist attack.
Thompson's bill marks the first piece of legislation to include a 10-year extension to TRIPRA.
In April, U.S. Sen. Mark Warner, D-Va., said he plans to back a 10-year extension to TRIPRA in the Senate, saying the Boston Marathon bombing demonstrated the need for a federal terrorism insurance program. Warner has not yet introduced a TRIPRA extension bill.
Congress showed interest in extending TRIPRA even before the bombing, driven in part by substantial industry support for the legislation.
In February, bipartisan group of House lawmakers introduced legislation that would give the program a five-year extension.
The program acts as a financial backstop for the property/casualty industry to help drive down the cost of terrorism coverage. For individual events to be covered under terrorism insurance policies, covered losses would have to exceed a minimum of $5 million. Federal funding kicks in once the country suffers total terrorism-related losses in excess of $100 million in any given year. At that point, each insurer offering terrorism insurance would be required to cover a deductible amounting to 20% of its annual premium income for TRIPRA-covered lines of business. Once the federal backstop kicks in, insurers would still be required to cover 15% of all claims up to the law's $100 billion cap. The other 85% would be covered by the federal government and paid back over time.
The Consumer Federation of America has come out against proposals to extend the Terrorism Risk Insurance Program. Earlier this week, CFA issued a statement that said the property/casualty insurance industry has more than enough surplus capital on hand to cover a terrorist attack on the scale of the one that took place on Sept. 11, 2001. The industry's capital surplus reached a record-high $586.9 billion in 2012, according to a report released by the Insurance Services Organization. CFA said that level of surplus is sufficient to cover a large-scale terrorist attack.
Evan Greenberg, chairman, president and chief executive officer of Ace Ltd., said recently that if someone thinks TRIPRA is a bailout of the insurance industry "then TRIPRA ought to go away. "
However, Greenberg also said he thinks TRIPRA has worked and that there has "been a real wisdom to it."
During a May 9 panel of the National Association of Insurance Commissioners' International Insurance Forum in Washington, Greenberg said the economy as a whole has come to rely on the government's "make-available requirement" for terrorism insurance.
"If TRIPRA does not renew, you will not see terrorism insurance broadly available," Greenberg said. "How much money does my company gain from writing terrorism insurance? It's a rounding error. I wouldn't make it available, and nor would any other company that I know of."