No one knows where the TRIA trail will lead: to another extension or the end of the line for the U.S. government backstop for terrorism insurance, which expires at the end of 2014. What we do know is that disruption and market dislocation are just around the corner, as markets, lenders and owners of property with terrorism exposure begin to deal with the potential for a big change in the world of terrorism insurance.
The private marketplace that sprung up post-9/11 has grown exponentially but it’s still insufficient to cover all of the exposures out there. So if TRIA goes away, a capacity crunch is inevitable. But markets are not waiting: they’re doing what they do, and seizing the uncertainty as an opportunity to raise rates.
Relevance to Workers’ Comp
The game is especially tricky in Workers’ Comp, as the rules governing the coverage prohibit exclusions for terrorism. That means Workers’ Comp writers may exit the business altogether in some cases. Already, clients are grabbing coverage in a state fund or other market of last resort.
What to do?
First, brace yourself. It’s going to be a rough ride, and an answer on the yes-TRIA or no-TRIA question probably won’t come until late 2014. Those federal legislators do love to take things to the edge—and beyond.
Second, know what you’re going to need. Work with your lenders to see what they require. Calculate your exposure. And then go to your carriers and find out what they plan to do if TRIA goes down. Cancel? Send your rates up past the clouds?
And you may want to look into the stand-alone markets. They could be very busy in the not-too-distant future.
See the video story I did about this with WillisTV’s Colleen McCarthy.