Terrorism Risk Insurance Act Set to Expire December 31, 2014 -- FAQs on TRIA Expiration

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We want to keep you informed of recent developments regarding the Terrorism Risk Insurance Act (TRIA).  TRIA was created as a result of the 9/11 terrorist attacks. The act created a federal backstop for insurance claims related to terrorism events in the United States.

Despite bipartisan support for the program, and previous TRIA extensions passing both the Senate and House by huge margins, the Senate recently adjourned without voting on final passage of a long-term TRIA extension.

The bill was blocked in the Senate over concerns with add-on provisions related to the Dodd-Frank Act and the creation of a National Association of Registered Agents and Brokers. While these provisions were unrelated to the TRIA program itself, the objections were enough to derail the entire legislation. As a result, TRIA will expire on January 1, 2015. 

The following questions and answers address the major issues that you should be aware of as TRIA's expiration approaches.

What impact will TRIA expiration have on availability of coverage?
Beginning on January 1, 2015, the United States government will no longer reinsure the private insurance market for terrorism coverage. This means that insurers may stop underwriting such coverage, particularly in high-risk areas such as New York, Chicago, Los Angeles, etc. If insurers reduce their exposures, then insureds may struggle to obtain adequate terrorism coverage at prices they can afford.

What impact will the expiration have on lending and development projects?
Since 9/11, most lenders have required commercial borrowers to obtain and maintain terrorism coverage for major construction and development projects. If insureds cannot find such coverage, then current and future lending agreements could be at risk. This could cause delays or cancellation of development projects.

Will this affect my current policies?
Many current policies contain sunset provisions stating that if TRIA is allowed to expire, then the policies' terrorism coverage will terminate on December 31, 2014.

Will my Workers’ Compensation coverage be affected?
State laws prevent exclusions for terrorism coverage in Workers' Compensation policies, so your current workers’ compensation policies are not in danger of cancellation. However, many policies contain language allowing the insurer to revisit pricing.

What is the outlook for an extension in 2015?
We will likely need to wait until mid-January to get a clear picture of the new Congress' plan to deal with a TRIA extension. However, there have been signals from Speaker of the House John Boehner and Senator Charles Schumer that there are plans to deal with TRIA immediately upon returning to Washington.

Are there other ways to purchase Terrorism coverage?
Stand-alone Terrorism insurance coverage is available in the market. These products actually address terrorism exposures in a broader manner than TRIA. For coverage to be triggered under TRIA, it must be certified by the Secretary of the Treasury, the Secretary of State, and the Attorney General of the United States. The certification guidelines are as follows:

  • An event must be an act of terrorism
  • An event must be violent, dangerous to human life, property, or infrastructure
  • The act must cause damage within the United States or to an air carrier or vessel or on the premises of a United States mission
  • The intent of the act must be to coerce the U.S. population or affect the conduct of the U.S. government  
  • If an act takes place and it is related to a war declared by Congress, the act may be certified for only workers' compensation coverage. Further, no action is certified if the commercial property and casualty aggregate losses are less than $5,000,000

The limitation inherent in TRIA coverage means that most terrorist events are not officially certified and are uncovered.  Recently, the 2013 Boston Marathon bombing did not meet the required threshold and created a coverage gap for many businesses affected by the attack. To date, no terrorist act has triggered coverage under the act.

Typically, a standalone terrorism insurance policy has a very broad definition of Terrorism: "An act, including the use of force or violence, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s), committed for political, religious or ideological purposes including the intention to influence any government and/or to put the public in fear for such purposes"

If you have any questions and/or comments, or would like to share your experience in dealing with the TRIA lapse, please contact your Equity Risk Partners representative, or email us at info@equityrisk.com.