Terrorism Risk Insurance Act extended for 15 years

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The Terrorism Risk Insurance Act (TRIA) has been extended by an additional 15 years, following a vote of the House of Representatives Committee on Financial Services.The extension of the TRIA, which was passed by 49 votes to 20, comes despite wide-ranging opposition from a number of politicians and regulators, who argue that terrorism insurance is an issue the insurance industry should have dealt with by now and is not the responsibility of the US government.

Aside from the 15-year extension, the amended Act also includes further provisions not included in the original law, such as coverage for nuclear, biological, chemical and radiological attacks, and amending the definition of terrorism to include domestic terrorism.

The TRIA will now take effect at terrorism-related damage valued at $50 million, and will decrease deductibles for damage valued at more than $1 billion. Additionally, the law requires continued studies of the development of a private market for terrorism risk insurance.

Introduced in 2002 in the aftermath of the 9/11 attacks, the TRIA was meant as a temporary measure to afford firms protection against terrorist attacks while the insurance industry developed its own means of offering similar products privately. The act was extended in 2005 for a further two years. Discussions surrounding a longer-term extension have grown following the most recent report of the President’s Working Group on Financial Markets, which concluded that a private market for terrorism reinsurance is virtually non-existent.

Government policymakers insist the new extension will “help spur the further development of a private market for terrorism risk insurance”. Opponents argue that the insurance industry has had five years already to come up with a private alternative, and that its failure to do so suggests it is not interested in developing private instruments.

“The Administration has frequently stated the need for three critical elements in TRIA reauthorisation: the programme should remain temporary and short-term, with no expansion, and a continued increase of private-sector retention. Today’s effort to extend TRIA does not meet these standards for an improved market and we strongly oppose this bill,” said Treasury assistant secretary for financial institutions, David Nason.

“We are particularly disappointed with the Committee’s decision to extend the programme for 15 additional years. This extension runs counter to the public policy goal of reducing and eventually eliminating the federal government’s role in the terrorism insurance market, and it sends the wrong message to the market-place for a programme that was intended to be temporary,” Nason added.