On November 26, 2002 President Bush signed into law a Federal program called the Terrorism Risk Insurance Act that required property and casualty insurers doing business in the United States to offer coverage for incidents of international terrorism. Following the events on September 11, 2001, many businesses were unable to purchase insurance coverage against future terrorist attacks because there was such a huge financial loss. Much of the financial cost from 9/11 fell on reinsurers and without a way to accurately model for terrorism exposures, reinsurers widely withdrew from this specific market. This in turn had a domino effect and primary insurers were forced to exclude terrorism. Congress responded to this by enacting the Terrorism Risk Insurance Act (TRIA), now referred to as the Terrorist Risk Insurance Program Reauthorization Act (TRIPRA) to provide coverage in the event that another large-scale terrorist attack occurs.

Upon renewal in 2007, TRIA was extended to December 31, 2014. This extension included added coverage for ‘certain acts of domestically sponsored terrorism’.   Insurers are required under the ACT to offer some terrorism coverage to certain commercial policyholders. Customers however, are not required to accept this coverage.

In recent news, U.S. Senate lawmakers overwhelmingly approved legislation to extend a federal terrorism insurance program for seven years. The need for the government to continue providing a backstop to the private sector in the event of a major terrorist attack was thoroughly stressed. Senators voted 93 to 4 to extend the Terrorism Risk Insurance Program through 2021. TRIA has been twice reauthorized with bipartisan congressional support but it will expire at the end of this year unless the House and Senate can agree on renewing it.

What does the expiration of TRIPRA mean for the property & casualty industry? If Congress fails to renew the terrorist risk insurance program, some insurers will be forced to review their books of business and possibly reduce risks with potential terrorism exposures. Commercial property writers who specifically market to larger urban markets will likely have the greatest credit sensitivity to reductions in available terrorism reinsurance.

Sources: www.NAIC.org; www.IRMI.com; www.insurancejournal.com;