Terrorism Risk Insurance Fails: Businesses Could Lose Coverage In 2015

Shortly after 9/11, the United States approved the Terrorism Risk Insurance Act (TRIA) providing a government reinsurance backstop in case of large-scale terrorist attacks, requiring that business insurers offer terrorism coverage for the types of insurance included in the act. This week, on the objections of Senator Tom Coburn, the Oklahoma Republican, TRIA was not renewed, and now as a result, the Insurance Information Institute notes, it could mean many businesses lose their terrorism coverage in 2015.

“A major terrorist attack occurring without a federal Terrorism Risk Insurance Act (TRIA) law on the books will be far more disruptive to the U.S. economy than one where TRIA is in place,” said Dr. Robert Hartwig, president of the I.I.I. and an economist. “Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real estate industries, among others. For instance, a theatre owner hosting a controversial movie premiere on Christmas Day may have insurance coverage for losses triggered by an act of terrorism but this same business might not have it if a comparable attack were to occur on New Year’s Day.”

Senate Majority Leader Harry Reid of Nevada blamed the non-renewal entirely on Coburn. “It’s unfortunate, but his objection is going to kill TRIA,” Reid said. “I’m very sorry about that, but it’s a fact.”

Coburn’s objections were due to “concerns over the underlying policy and a plan to set up a regulatory body to supervise insurance agents and brokers (the National Association of Registered Agents and Brokers Reform Act or NARAB),” Insurance Journal reported.

Taxpayers assume most of the risk while “the insurance industry makes all the money,” Coburn claimed on the floor of the Senate.

Hartwig disagreed with Coburn’s assessment.

“TRIA has been an unambiguous success. The program has cost U.S. taxpayers virtually nothing yet has provided tangible benefits to the U.S. economy in the form of economic growth and job creation while ensuring terrorism insurance market stability, affordability and availability,” Dr. Hartwig stated.

Hartwig added in comments to Insurance Journal that carriers have been including contingent exclusions in regard to TRIA-related exclusions — “that is, exclusions that would be triggered if TRIA is not renewed,” IJ notes — since earlier in 2014 for policies with effective dates stretching into 2015.

“The non-renewal of TRIA will likely lead to lots of questions — the nature and extent of which will be affected by the length of time Congress takes to consider a new TRIA bill in the session that starts early next month,” Hartwig said.

Robert Rusbuldt, president and CEO of the Independent Insurance Agents and Brokers of America, was “profoundly disappointed” by the non-renewal.

“The TRIA legislation had overwhelming bipartisan support in both chambers of Congress along with strong support from the White House. This inaction is particularly galling in light of the 417–7 vote in the House last week on this exact same legislation,” Rusbuldt said, adding he was disappointed that the accompanying insurance producer licensing reform provision — the National Association of Registered Agents and Brokers Reform Act (NARAB) — was shelved.

“As if this weren’t bad enough, thousands of small business owners and their customers are waking up … with coal in their stockings after somehow NARAB II, agent licensing reform that has already passed both chambers in different bills, was also left on the cutting room floor,” Rusbuldt said. “We urge Congress to pass both common-sense, bipartisan pieces of legislation as soon as they convene for the 114th Congress early next year.”

Do you think it was time for TRIA to go, or is the Senate making a mistake? Sound off in the comments section.

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