In our Scariest Risks special feature last week, I wrote about the uncertainty of Congressional reauthorization TRIA. With a little more space at my disposal, let me go into more detail about the situation.
For most U.S. companies the continued availability of sufficient property and casualty terrorism insurance will become a significant issue in the coming months, with the reauthorization of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (formerly known as “TRIA”) in jeopardy. The Act sunsets December 31, 2014 and with TRIA not on the 2013 agenda, it is feared that a disinterested Congress will not take up the issue until late in 2014, causing major market disruption.
A Scary World Without TRIA
No longer being subject to mandatory, “make available” requirements for terrorism insurance, carriers may implement “sunset provisions” in insurance contracts with expiry dates falling past December 2014. Workers Compensation insurers facing statutory requirements to insure terrorism may withdraw from the market altogether, rather than write programs without the TRIA backstop.
As a result, terrorism insurance could be expected to become highly commoditized, particularly in central business districts, such as New York and Chicago, where aggregation of risk may result in capacity constraints and increased rates.
Companies that have utilized TRIA-backstopped captives for terrorism risk transfer will be forced to seek alternative capacity, as captives are defunded, putting more stress on the already inadequate market.
Given the uncertainty and possible risks concerning the possible non-renewal of TRIA, below are possible action a company should consider:
- Question current underwriters as to their post-TRIA expiry position, as many carriers have already established positions for a post-TRIA environment.
- Use a proactive strategy to secure sufficient terrorism coverage in the stand-alone terrorism insurance market to ensure coverage continuity and to satisfy:
- Maximum foreseeable loss for key properties
- Minimum requirements under loan agreements
- Shareholder requirements
- Fire Following Terrorism Issues
- Statutory requirements