The APCIA's Robert Gordon, Senior VP, Policy, Research and International, explains why a long-term, clean extension is necessary to not just the re/insurance industry, but to American democracy.
In the unstable world of terrorism, there has been one constant throughout much of the 21st century – the stabilizing force of the Terrorism Risk Insurance Act (TRIA). Upon its Congressional enactment following the 9/11 terrorist attacks on the United States, TRIA immediately calmed the insurance markets, providing a solvency safety net for insurers in exchange for making terrorism coverage available to consumers.
TRIA operates at no net cost to taxpayers. Under TRIA, the private sector absorbs the lion’s share of losses even from most catastrophic terrorism events. To the extent the TRIA safety net provides an excess-of-loss protection layer, any federal outlays can be recouped through policyholder surcharges over time. But TRIA helps protect the solvency of the carriers bearing the brunt of the attack and smooths out the catastrophic layer of losses over the broader marketplace over time.
Losses from a terrorist attack under TRIA would be adjusted and paid by private sector insurers to the victims of the attack swiftly and efficiently through existing extensive private insurance adjustor networks without the need to wait for a lengthy government appropriations process. The genius of TRIA is that it empowers the private sector to perform an essential national security function on behalf of the government, protecting our nation from terrorism losses, but with almost no government employees or net exposure.
While TRIA does not expire until the end of 2020, insurance policies will be negotiated over the next few months, with exposures running past that date that in many cases will include such exclusions. If Congress does not reauthorize the program soon, the uncertainty of loss exposures and conditional exclusions may permeate the marketplace, exacerbating uncertainty and instability.
Congress has reauthorized the program three times since TRIA’s original enactment and APCIA is confident that Congress will do so a fourth time. But in each reauthorization cycle Congress re-examines the underlying premise of the program and typically imposes last-minute changes. In 2014 (the last reauthorization), TRIA lapsed entirely for 12 days before being reauthorized. Numerous businesses and event planners on New Year’s Eve were suddenly facing challenges obtaining terrorism insurance coverage, and, had a terrorist attack occurred during the lapse, millions of policyholders could have been left suddenly without insurance as conditional terrorism exclusions were triggered.
As the U.S. learned in the aftermath of the Boston Marathon bombing, terrorism can hit any business anywhere, with concentrations of people and cultural institutions particularly at risk. TRIA not only protects marketplace stability – it protects our symbols of American democracy. And it gives our nation the peace of mind that we can, and will, recover from any future terrorist attack.
To avoid the recurring cycle of contingent terrorism exclusions and marketplace uncertainty, Congress can protect the economy by reauthorizing TRIA by the end of this year on a long-term basis. That will provide insurers and modeling firms with more time and stability to expand coverage to policyholders and address coverage gaps with new services and products within the protection of TRIA. There has been strong agreement by insurers and reinsurers that the current TRIA thresholds leave more than adequate space for private sector interest and evolution.
Congress can also ensure stable markets by avoiding further cuts to the TRIA safety net that undermine the program goals. Each of the thresholds in the original TRIA program were based on industry standards for stability and prudent capital management. As the program deductibles, co-shares and trigger levels are increased far beyond their original rationales, the program risks becoming a “once and done” salve that helps protect pre-event market stability but would not fulfill TRIA’s explicit goal of protecting the American economy after a catastrophic terrorism event.
Terrorists thrive not just on harming as many people as possible during an attack, but also creating as much economic and cultural disruption as possible in the aftermath, destabilizing communities and markets through fear. TRIA not only provides critical economic protection for America, but if calibrated properly can keep the markets stabilized post-event, with private sector efficiency and no net cost to taxpayers. Insurers and policyholders are united together in asking Congress to renew the current program with a long-term, clean extension that can provide security and certainty to our economy.