Senate terrorism insurance bill fails to make appropriate reforms
The U.S. Senate today voted to approve S. 2244, the Terrorism Risk Insurance Program Reauthorization Act, by a 93 to 4 margin. Unlike H.R. 4871, the TRIA Reform Act – which was approved by the House Financial Services Committee in June – the Senate’s proposed seven-year extension fails to make appropriate changes to the program to shift more risk to the private sector, according to R Street Senior Fellow R.J. Lehmann.
“The insurance and reinsurance markets have grown significantly in the dozen years since the Terrorism Risk Insurance Act first was passed, as seen most recently by some reinsurers dropping exclusions for terrorism from standard policies,” Lehmann said. “As private markets for terrorism insurance continue to advance, it is appropriate that the government’s role should retreat to ensure that private capital is not displaced by taxpayer bailouts.”
The Terrorism Risk Insurance Program is a $100 billion federal backstop established in the wake of the Sept. 11, 2001 terrorist attacks. It provides reinsurance coverage for terrorism risks to private insurers, who are required to offer coverage to their commercial property, liability and workers’ compensation policyholders. Insurers do not pay the government any premium for the coverage, but under some circumstances may be asked to repay a portion of any outlays after an event.
While the Senate bill does make modest adjustments to the federal share of terrorism losses, which gradually would be scaled back to 80 percent from the current 85 percent, the House bill goes further by raising the trigger level for coverage for conventional terrorist attacks to $500 million. Events involving nuclear, biological, chemical and radiological risks would retain the current $100 million trigger.
“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. “The changes proposed in the House bill are well within the bounds of the private market’s existing capacity, and failing to make those changes would put taxpayers on the line for risks that should be borne by big corporations, property owners and insurance companies.”