TRIA Make Available Provision:
Issue Summary: Extending TRIA"
The Terrorism Risk Insurance Act (TRIA) expires at the end of 2005. However, the provision in TRIA which mandates that insurance companies “make available” terrorism insurance on the same terms and conditions as property and casualty insurance expires at the end of 2004. The Treasury Secretary has sole authority to extend this requirement for one year if he acts by September 1, 2004. Policyholders nationwide urge the Treasury Secretary to extend the provision in order to avoid economic slowdown and provide adequate economic protection against terrorism.
TRIA was enacted in 2002 because the private insurance marketplace was failing to provide adequate terrorism insurance coverage following 9/11. TRIA was designed to provide a bridge to a time when the private insurance markets functioned again. Following TRIA's enactment, terrorism insurance coverage became readily available, thus enabling billions of dollars of transactions previously stalled to go forward. The primary reasons TRIA successfully expanded terrorism insurance capacity are: 1) the program requires that the federal government share the risk of loss from terrorist attacks with the insurance industry; and, 2) the program requires that insurers offer terrorism insurance coverage to policyholders on the same terms and conditions as other property and casualty insurance ("make available provision").
Policyholders are now increasingly concerned that terrorism insurance will again become scarce because, even though the terrorism insurance program does not technically expire until December 31, 2005, there are several facts that could result in the program expiring in fact a year earlier than its statutorily prescribed termination date. First, the law now requires that all insurance companies doing business in the U.S. must offer terrorism insurance coverage on the same terms and conditions they offer property and casualty coverage. This provision is known as the "make available" provision. This "make available" requirement expires at the end of 2004. The Secretary of Treasury has the authority to extend the "make available" date for one additional year.
At the same time, the law also has a provision that sets the amount of loss which an insurance company must absorb before the federal insurance backstop kicks in. This so-called "retention level" is set in law and was 7 percent of direct earned company premiums in 2003; 10 percent in 2004; and, increases to 15 percent in 2005.
TRIA was originally enacted as a temporary program to allow private terror insurance markets to stabilize and provide adequate capacity to meet the demand for coverage. Yet to date, there is little evidence that the private insurance markets have stabilized. Two examples of continuing private market failure are:
· There is no reinsurance available for the retained loss amounts held by private direct insurers, even though the potential loss is quantifiable as measured by the individual company retention amount.
· There is no terrorism insurance coverage being offered by private direct carriers for chemical, biological or radiological events even though the federal backstop would cover such losses if they were insured against.
Therefore, although the general terrorism insurance program remains in effect until 2006, the combination of these factors is causing policyholders to conclude that it will be increasingly difficult to obtain terrorism insurance coverage as early as later this year.
The Treasury Secretary should be urged to extend the “make available” date because the private insurance market has not yet stabilized. Inadequate availability of insurance coverage against terrorist attacks would leave the U.S. economy insecure.