Renewed: Terrorism Risk Insurance Act (TRIA)
Just recently, President Obama signed legislation reauthorizing the Terrorism Risk Insurance Act (TRIA), which had been allowed to expire on Dec. 31, 2014. Based on the amount of news there was regarding the Senate ending their session for 2014 without voting on an extension of Terrorism Risk Reinsurance Act (TRIA), I assume many of you at least heard that the act (temporarily) expired. The net effect of the Senate’s inaction was the governmental reinsurance of a terrorist event ceased effective Jan. 1, 2015.
Much of the news available during this lapse was centered on the possible dire situation which it creates. While I’d agree that it would have been disappointing if the government didn’t renew the reinsurance, be aware that most large P&C insurers have been underwriting and limiting their exposures to property value and employee concentrations for some time. The sizable dollar retentions the insurance carriers have within the TRIA program required them to manage their concentrations for their own balance sheet protection. For this reason and for most insurers, this wasn’t an issue they were very excited about.
The underwriting controls in place have allowed many of the largest carriers to issue their terrorism coverage without a Sunset Provision: a Conditional Exclusion Provision which would cause the coverage to cease based on a non-renewal by the government of TRIA. Without the conditional exclusion, your policy was never affected by the non-renewal of TRIA. If you’re currently purchasing terrorism coverage and the policy has/had a sunset provision and it wasn’t extended by the insurance carrier, there was a potential lapse in coverage for the 12 days the act was not inforce. Industry groups are working with the carriers utilizing the Sunset Provisions to understand how they intend on addressing this issue with you.
So, is the renewal of the TRIA bill even a big deal? I still believe the answer remains, yes. This reinsurance provides market capacity to write terrorism for some insurance carriers whose balance sheets are too small to provide the coverage without it. Also, the act allows for stability of pricing and market availability for high target events and buildings. In fact, some events, such as the Super Bowl, could struggle with securing coverage at all without TRIA. At the same time, the non-renewal did show that there are private options to terrorism reinsurance that are available should the government option go away. This renewal of TRIA is for six years…then we’ll see what happens next.
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