Terrorism Risk Insurance Reauthorized on January 12, 2015
Prior Terrorism Risk Insurance Legislation
In the immediate aftermath of the September 11, 2001 terrorist attacks, property insurance markets seized when insurance companies that specialize in insurance risk sharing no longer covered terrorism insurance in their reinsurance programs. In reaction to this and other impacts and their effect on the national economy, TRIA was signed into law in November 2002. TRIA authorized collective payments to insurers of up to $100 billion per year for losses caused by terrorism. TRIA included both a deductible and loss sharing feature for insurance companies. The deducible was set at 15 percent of each insurers' prior year's earned premiums. Once this deductible was met, the federal government's share of additional insured loss was 90 percent.
In the event that federal government loss sharing payments were made, a policy holder surcharge of three percent would be required to be paid to the federal government by insurers. This repayment or "recoupment" feature was part of all subsequent TRIA reauthorizations, in addition to the $100 billion annual payment cap.
In 2005, TRIA was extended for an additional two years by the Terrorism Risk Insurance Revision and Extension Act of 2005, and in 2007, the program was extended for seven years by the Terrorism Risk Insurance Program Reauthorization Act. Both reauthorizations included incremental programmatic modifications that supported widely available and affordable terrorism risk insurance.
Congress Approves Terrorism Risk Insurance Program Reauthorization Legislation in January 2015
In January 2015, by a resounding 93 to 4 vote, the U.S. Senate passed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (H.R. 26), which extends the terrorism risk insurance program (TRIA) for six years. The U.S. House passed H.R. 26 by a 416 to 5 vote. This bill, like its predecessors, makes modest changes to the program. Taken as a whole, MBA believes these reforms are well balanced and will ensure terrorism risk insurance remains affordable and available to those who need it. On January 12, 2015, President Obama signed H.R. 26 into law (P.L. 114-1).
While introducing a number of modifications, the TRIA extension maintained the existing structure of the Terrorism Risk Insurance Program. Below are several of the key provisions of the TRIA extension:
- Duration: 6 year reauthorization.
- Program Trigger: Increases to $200 million, with no change in 2015, then phased-in the following five years in $20 million increments.
- Payment Co-Share: Increases from 15 percent to 20 percent for insurers, with no change in 2015, then phased in one-percentage per year. During this time, the federal government's co-share decreases from 85 percent to 80 percent.
- Recoupment: (1) The insurance marketplace aggregate retention amount, currently $27.5 billion, will increase over the first five years in annual $2 billion increments to $37.5 billion. (2) In the sixth year, the aggregate retention shall be equal to a three-year average of the sum of insurer deductibles for all insurers participating in the program. Treasury will issue rulemaking as to how it will determine this three-year average. (3) The percentage recoupment increases to 140 percent from 133 percent.
- Certification: (1) The Treasury Secretary shall study and report to Congress on certification process and within 9 months of that report, issue final rules on the certification process, which must include establishing a timeline for certification. (2) Replaces Secretary of State with Secretary of Homeland Security, requires only consultation by the Treasury Secretary (current law requires their concurrence).
- Studies/Reports/Misc.: (1) GAO study required on the impact of upfront premiums and reserve fund implications. (2) Treasury will do annual study on the competitive challenge to small insurers participating in the program. (3) Creates advisory committee on risk spreading mechanisms. (4) Treasury to require insurers to submit terrorism insurance data.
Other terms of the current TRIA program -- including the insurer deductible and the $100 billion annual program cap -- remain unchanged from current law.
Importantly, a proposal that MBA strongly opposed, the bifurcation between conventional terrorist attacks and nuclear, biological, chemical, and radiological (NBCR) terrorist attacks was not included in the House-passed legislation. This would have created higher program trigger levels and lower government payments for conventional versus NBCR terrorist attacks.
The Federal Terrorism Risk Insurance program has brought stability to the terrorism risk insurance market by providing a federal risk-sharing program to insurance companies for terrorism-related losses. MBA has been the leading voice in working with policy makers to advance our members' objectives to support the passage of TRIA and subsequent extension legislation. MBA remains in a leadership role in advocating for TRIA reauthorization, including participation on the Steering Committee of the Coalition to Insure Against Terrorism (CIAT), which is comprised of more than 70 real estate and business trade associations, as well as direct participation from Fortune 500 companies.
After TRIA expired on January 1, 2015, MBA was a leading advocate for the TRIA extension being the first law of the 114th Congress.
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