Expiration of Terrorism Risk Insurance Act
In November 2002, President Bush signed into law the Terrorism Risk Insurance Act of
Legislation guarantees backing of the U.S. government for insurance companies in
aftermath of another attack like Sept.11, 2001.
President Bush advocated for legislation as vital to recovery of U. S. economy. He said it
would unleash construction projects and jobs that have been delayed by a lack of coverage
against the types of attacks in New York and Washington DC in September 2001.
Insurers said that they had absorbed the estimated $40 billion of claims from Sept. 11 but
would be devastated by future similar attacks. In addition to insurance company
executives; mortgage bankers, property developers and construction unions pushed for the
legislation, saying building projects have been postponed due to the very limited terrorism
Insurance companies are now in a position to underwrite coverage against the catastrophic
and virtually limitless risks associated with the new breed of terrorism.
TRIA of 2002 put a system in place that, if terrorists strike our country again, America
will be in a position to address its financial losses and restore its economy as quickly as
However, TRIA expires on December 31, 2005. If it is not renewed, insurance companies
will no longer have the backing of the federal government.
In April the Senate Committee on Banking, Housing and Urban Affairs held a hearing on
the Oversight of the Terrorism Risk Insurance Program to decide if TRIA should be
extended beyond December 31, 2005.
Most members favored extension for at least two years, stating that there is currently no
mechanism in the private insurance market to provide terrorism insurance and
reinsurance. Supporters of the extension said that failure to extend TRIA will have severe
economic consequences, and cause large market disruptions in many industries as
terrorism insurance becomes unavailable on Jan.1, 2006.
Senator Chris Dodd specifically commented that workers’ compensation will be adversely
affected by allowing TRIA to expire. He noted that workers’ compensation laws require
coverage for acts of terrorism and that failure to extend TRIA will likely cause dramatic
premium increases and shrink the availability of insurance coverage. Workers’
compensation laws cover all injuries in the course of employment. Nothing, not even acts
of terrorism, can be excluded. These conclusions of Senator Dodd were supported by the
Director of the Congressional Budget Office.
At the hearing, Republicans expressed a strong preference for a private sector solution as a
permanent mechanism. Committee Chairman Richard Shelby began by noting that TRIA
was intended as a temporary program and that he strongly prefers the private market to be
the sole source of terrorism insurance and reinsurance.
In November 2002 after TRIA was passed, insurance company executives publicly
congratulated themselves on their cooperation and teamwork. At the same time, they
were told by the government to work on a long-term solution and have it ready for
implementation by December 31, 2005. However, the executives have apparently done no
work on a program to succeed TRIA 2002.
At the hearing, Senator Shelby said the insurance industry must develop alternatives to
TRIA in order to minimize the role of the federal government as the insurer of last resort.
But at the conclusion, the Republicans acknowledged the need for a mechanism to be
developed if the private markets were not ready to provide terrorism insurance and
A dissenting voice to any government action has been Robert Hunter, Director of
Insurance Consumer Federation of America. He says, “The insurance industry is hugely
profitable and does not need a federal subsidy to cover terrorism losses after TRIA
expires.” He cites estimates of insurance authority, A. M. Best, which indicate the
insurance industry had $388 billion in retained earnings in 2004, compared to $295 billion
after the Sept. 11 attacks. Mr. Hunter says that policyholders would only incur small,
affordable additional costs if TRIA is allowed to expire.
In spite of strong support of a TRIA extension by the Senate’s Banking, Health and Urban
Affairs Committee, no bill has been introduced in the Senate or the House. The
committees of both have waited for a report from the Secretary of the Treasury. TRIA
2002 requires Secretary Snow to give a report by July 1, 2005 regarding how well TRIA
has done and to recommend what should now occur.
On June 30, Secretary Snow released his report. It opposed an extension of TRIA in its
current form, concluding that an extension will, “hinder the further development of the
insurance market.” However, the report adds that the Bush Administration “would accept
an extension” only if it increases the event size that triggers coverage to $500 million and
increases the dollar deductibles and percentage co-payments.”
Insurance companies and brokers responded by saying the report makes some general
conclusions about the market without taking into account what is currently occurring.
AON said that the potential expiration of TRIA has caused 80% of new property
insurance to have a terrorism risk exclusion take effect on January 1, 2006. Ellen Vinck,
President of RIMS said, “The recommendations in the Treasury Department report on the
future of TRIA do not reflect the reality of the current environment. The removal of a
federal backstop for terrorism insurance needlessly puts our nation’s economy at risk.
RIMS, therefore, renews its call to Congress to pass legislation to extend the terrorism risk
insurance program without further delay,”
Leigh Ann Pusey, Senior Vice President of the American Insurance Association, said the
issuance of the report does free up Congress to pursue a solution by the end of the year.
The fact that Treasury is acknowledging the need for some program really is a silver
In response to Secretary Snow’s report, Senate Banking Committee Chairman, Richard
Shelby, said he believes his committee will pass some sort of backstop, albeit more
narrow than the current TRIA. Representative Michael Oxley, who is Chairman of the
House Financial Services Committee said, “I am committed to delivering a bill to the floor
of the House of Representatives this year.”
The bottom line is that insurance companies believe that terrorism as a risk is uninsurable
unless there are limits to protect them against catastrophe. The workers’ compensation
system is especially vulnerable. Allowing TRIA to expire without a practical backstop,
creates an unacceptable risk to workers, the business community and the nation’s
The long term answer may be some sort of public-private partnership that recognizes the
unique nature of the terrorism risk. I’m aware that government intrusion into economic
matters is often not good. Ideally the private sector should cover the exposure all by
But in an ideal world, there wouldn’t be any terrorists, either.