WASHINGTON (June 20, 2014) – The R Street Institute welcomed today’s passage of H.R. 4871 , the TRIA Reform Act of 2014, by the House Financial Services Committee.
The measure, sponsored by Rep. Randy Neugebauer, R-Texas, calls for a five-year extension of the federal Terrorism Risk Insurance Program, a $100 billion reinsurance backstop originally passed in the wake of the Sept. 11, 2001 terrorist attacks. However, the bill includes important taxpayer-protection provisions that gradually shrink the size of the federal program.
“Rep. Neugebauer’s bill strikes the proper balance between ensuring that sufficient capacity exists for U.S. businesses to insure against catastrophic terrorism, while also guarding against government subsidies that would unjustly enrich insurance companies and major commercial real estate developers,” R Street Senior Fellow R.J. Lehmann said.
Under terms of the TRIA Reform Act, the trigger level for conventional terrorism attacks would be raised gradually from the current $100 million to $500 million by the end of 2019. For attacks involving nuclear, chemical, biological and radiological events, all of which must be covered by law under workers’ compensation policies, the program’s current terms would remain intact.
“Reinsurance broker Guy Carpenter recently issued a report  finding that multiline terrorism reinsurance capacity is about $2.5 billion per program for conventional terrorism and about $1 billion per program for coverages that include NBCR,” Lehmann said. “Given those figures, and the continuing growth of capacity thanks to the influx of alternative sources of capital, we think the adjustments called for in the House bill are perfectly reasonable.”
The industry also would be asked to increase its co-payment share of conventional terrorist attacks from the current 15 percent to 20 percent, while individual company deductibles would remain at 20 percent of prior year premiums in a particular line of business. The industry would be asked to repay taxpayers 150 percent of funds expended, up from 133 percent currently, up to a floating retention level calculated by adding the aggregate amount of individual company deductibles.
Lehmann also praised a provision calling on the non-partisan U.S. Government Accountability Office to conduct a study on the feasibility of charging companies an upfront premium for TRIP’s reinsurance coverage.
“Much like the federal Riot Reinsurance Program of the 1970s, the way forward for federal terrorism reinsurance ultimately is to charge companies an actuarially adequate premium,” Lehmann said. “We can never know how much capacity the private reinsurance sector might be willing to commit to terrorism coverage so long as the government provides it for free.”
- “H.R. 4871”: http://financialservices.house.gov/uploadedfiles/bills-113hr-pih-tria-n000182.pdf
- “a report”: http://www.guycarp.com/content/dam/guycarp/en/documents/dynamic-content/Uncertain%20Future_Evolving%20Terrorism%20Risk_June%202014.pdf