What We Told the New York City Council in Support of Renewing TRIA

New York Terrorism

The New York City Council Committee on State and Federal Legislation is hearing testimony today in advance of their plans to submit a petition* to U.S. Congress and the President asking them to extend TRIA, the federal Terrorism Risk Insurance Act. Willis was asked to testify, and my colleague Alex Littlejohn testified on behalf of Willis and The Council of Insurance Agents and Brokers, outlining our position in support of the reauthorization, as well as some of the key arguments in the debate. You can download her entire statement below, but here are the key points of her testimony.

Traditional Mitigation and Modeling do not Apply to Terrorism Risk

It is important to recognize that terrorism is not a peril that can be reduced or avoided by traditional loss mitigation techniques, nor is the typical methodology for determining premiums for catastrophe exposures, e.g., flood, applicable to the calculation of terrorism pricing models. The ability to accurately predict frequency of events within a specific zone is essentially impossible.

Accordingly, as underwriters of this class rely upon risk aggregation models which track inventories of insured properties within a specific zone, there can be a wide variation in the pricing models applied and the availability of coverage due solely to the concentration of risk in any one underwriter’s portfolio. Metropolitan New York is typically referred to as the most highly aggregated risk area in the country  (if not the world) in terms of property portfolios insured for terrorism, which, in turn, on a supply and demand model, pushes costs significantly higher than other regions in the U.S.,  for what would otherwise appear to be similar occupancies.

Terrorism Insurance Capacity is Limited

With no demonstrable expansion of this specialist insurance market, much of the existing terrorism insurance capacity has already been allocated on a medium to long term basis to existing buildings and projects under construction with little or no insurance capacity left available for new development.  To compound the problem, construction costs have risen from $400/$450 sq. ft. 5 years ago to $500/$550 sq. ft. for new construction, further increasing the need for higher limits to insure to value and compounding the aggregation/capacity problems.  Additionally, it is estimated that up to 85% of all commercial mortgages require terrorism insurance.

Economy Will Suffer Without TRIA Extension

Without adequate limits in place, projects may not be started, leading to a negative ripple effect throughout the economy.

TRIA must be reauthorized and it must be reauthorized sooner rather than later to avoid disruptions in coverage. Without the certainty of an extension of TRIPRA, we are beginning to see provisos written into new insurance contracts that limit or eliminate terrorism coverage after December 31, 2014. This will undoubtedly delay, if not scrap, major development plans, thereby jeopardizing an already fragile economic recovery.


*Resolution calling on the U.S. Congress to pass, and the President to sign, legislation that would extend the Terrorism Risk Insurance Program Reauthorization Act of 2007

About Wendy Peters

Wendy is a Executive Vice President of Willis’ North American Terrorism Practice. Based in Radnor, Pennsylvania, …
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