Risk industry welcomes TRIA bills, urges quick resolution

The two bills-one from the House of Representatives and the other from the Senate-will now need to be reconciled and approved by their respective houses of Congress. Last week, the House of Representatives' Financial Services Committee voted by 32 to 27 in favour of approving its proposed extension of Terrorism Risk Insurance Act (TRIA) through to 2019, but with amendments aimed at encouraging more robust private market participation. Its bill proposes a clear differentiation between conventional terrorist attacks and those involving nuclear, biological, chemical and radiological (NBCR) weapons. The federal backstop would kick in for conventional attacks where losses are in excess of US$500m, compared with the current US$100m. The insurance industry's stake would rise to 20% of insured losses from the current 15%. The trigger for NBCR losses would remain at the lower level.hideThe House bill would also streamline the process for verifying a terrorist event under TRIA and require certification to take place within 90 days of a terrorist attack. The current law has no such timeline in place. Launching the bill, the House Financial Services Committee chairman Jeb Hensarling said: "I do believe this bill is a reasonable set of changes to improve a needed-but-yet-still-temporary programme and prepares stakeholders for the future by realistically assessing the true benefits and costs of TRIA's current framework." Randy Neugebauer, who sponsored the House bill, said: "Now is the time to take off the training wheels and lay the foundation for a more robust private market for terrorism risk." US risk management association Rims welcomed the House Committee's bill. "With only six months until TRIA's expiration, time is quickly running out but we remain optimistic that the House and the Senate can agree upon a final TRIA bill before the sun sets on this critical federal backstop," said the association's president Carolyn Snow. "Rims greatly appreciates the efforts of the Financial Services Committee, especially with regards to the five-year extension of the programme and the streamlined certification process," she added. However, Rims would have preferred a longer extension, she said. It also wants any solution to address the long-term availability and affordability of terrorism-related NCBR insurance coverage. At the start of June, The US Senate Banking Committee approved a bill that would see TRIA extended for seven years, albeit with some changes. The main compromise would see insurers' share of potential losses rise. The deductible insurers would pay before federal aid steps in would increase by US$2bn annually from the current $27.5bn, until it reaches US$37.5bn in five years. While the insurance industry has applauded the House bill for keeping the legislative process going, support for the Senate bill is stronger. The Senate bill's sponsor, Charles Schumer, described the House of Representatives' bill as a 'backwards approach'. He believes that the House bill would make it harder for insurers to provide terrorism cover, saying that it 'fails to provide the long-term certainty that developers and business owners need'. The American Insurance Association (AIA), the Property Casualty Insurers Association of America (PCI) and the National Association of Mutual Insurance Companies (NAMIC) all welcomed the House bill to extend TRIA, urging Congress to move quickly. "The passage of [TRIA Reform Act of 2014, H.R. 4871] out of the Committee represents another significant step forward toward the programme's ultimate reauthorisation," said Leigh Ann Pusey, President and CEO of the AIA. "The AIA urges the House to maintain its swift legislative pace on TRIA," she added. "AIA will continue working with the Committees and Congress to pass TRIA reauthorisation legislation and to address remaining concerns such as bifurcation and increasing the programme trigger that could negatively impact capacity. We are confident that TRIA will be reauthorised in 2014 with strong bi-partisan support," said Ms Pusey. The PCI said that it was optimistic following the House action on TRIA. "As they continue deliberations, we call on Congress to ensure that any increases to the trigger and co-share not be so high or so steep that they inhibit the availability and affordability of terrorism insurance," said Nat Wienecke, Senior Vice President, Federal Government Relations at the PCI. Jimi Grande, Senior Vice President of Federal and Political Affairs at NAMIC commented: "At the beginning of this Congress, the question being asked was whether this programme should even be reauthorised. Today's favourable vote on a five-year TRIA reauthorisation bill out of the Financial Services Committee shows just how far we have come." "That said, NAMIC has serious concerns about some of the provisions in the House bill that, if not addressed, could severely curtail some companies' access to the programme and significantly disrupt the currently competitive marketplace for terrorism insurance coverage," he added. In particular, the House bill dramatically increases the programme trigger for non-NBCR events. "The result would be reduced competition and a greater concentration of risk as small-and medium-sized regional or single-state insurers are driven out of the terrorism insurance market," said Mr Grande. In a recent report Guy Carpenter concluded that the reinsurance and insurance sector does not have the capital necessary to withstand high-loss scenarios that involve nuclear, biological, chemical or radiological weapons. It also concluded that while more effective counter-terrorism had avoided a repeat of a large scale terror attack, al-Qaeda and its affiliates continue to pose a significant threat to western interests around the world. Guy Carpenter believes that the threat from Islamic militants has shifted to softer targets, with attacks and plots becoming more localised in the past eighteen months. However, attacks on the In Aménas gas facility in Algeria and the Westgate shopping mall in Nairobi, Kenya, indicate that groups are still capable of launching destructive and sophisticated attacks on commercial entities, it said. The civil war in Syria and the uprising in Iraq will have important consequences on the future of the international terrorist threat, Guy Carpenter said in its report. "The instability in the region has created opportunities for militants to launch attacks and target western interests. The spillover of violence is a clear risk in 2014 and beyond," it said. However, the absence of a major terrorism loss for reinsurers has resulted in a softening of the terrorism reinsurance market in some countries and regions, according to Aaron Bueler, Managing Director and Leader of Guy Carpenter's Workers Compensation Practice and Terrorism Task Force. "In the US, the renewal of TRIA will play a significant role in determining how much affordable capacity will be available for businesses who buy terrorism insurance coverages," he said.

Risk industry welcomes TRIA bills, urges quick resolution

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