TRIA Might Not Survive, RMs Warned

Terrorism coverage premiums could soar if Feds let backstop expire

Extension of the Terrorism Risk Insurance Act is less than assured and its worth may not be appreciated until after another terrorist event occurs, risk managers were warned last month.

Insurers and buyers speaking in Philadelphia at the Risk and Insurance Management Society's annual conference said the renewal debate will probably not be resolved until close to the end of the year–TRIA is due to sunset on Dec. 31–but the issue is gaining notice in Washington.

“We do not know what Congress will do, but there is more traction on the issue now,” said James Maden, assistant vice president of property insurance for Lexington Insurance Company. He said TRIA is gaining attention among lawmakers because they are seeing broader interest in the reauthorization from more than just the insurance industry, with members of the lending and real estate communities beginning to speak up. “If it was just the insurance industry it would not get done,” he said. “Ultimately, something will get done.”

Wendy Peters, senior vice president for the terrorism practice group, global markets, North America, for Willis in Radnor, Pa., expressed concern about the “myopic view” within the insurance industry that Congress understands the importance of TRIA. She said there are members of Congress who do not see the issue as very important and others who know nothing about it.

David E. Wood–an attorney for Wood/Bender, LLP., in San Buenaventura, Calif., who moderated a panel on the subject–noted that a lot can happen between now and the end of the year. Events, he said, could overtake the importance of TRIA “and slide the issue to the backburner.”

Finding a mechanism that would provide backstop coverage in the event of another terrorist attack is a national problem, added Karl J. Zimmel, director of risk management for Alberto-Culver Company in Melrose, Ill.

Lessons Learned

He said the lessons of asbestos litigation reform should have taught the nation that it is difficult to place the entire burden on the insurance community without some federal support. Should TRIA not be extended, he expected it would not have a significant impact on the coverage initially, but “if there is an event, all bets are off.”

Mr. Maden said there is not enough capacity in the stand-alone market to provide terrorism coverage, and insurers “know we need help.” He added that TRIA renewal might have to mandate discussions among insurers to develop more private market answers–something the expiring law fails to do.

Ms. Peters said an alternative system can be found, but ultimately any solution will need federal coverage against catastrophic loss. “There are ways to do it, but the government does have a role,” she said.

Should TRIA not be renewed, policyholders could eventually see increases of 200-to-300 percent for terrorism coverage, said Gary Marchitello, managing director of national property syndication with Aon Risk Services. A report by Aon on the status of U.S. property terrorism coverage found that in 2004, 56 percent bought some form of the insurance.

Aaron F. Davis, vice president of property syndication at Aon Risk Services, said there should be greater certainty on which direction Congress will go after the Treasury Department releases its report at the end of June. There is some concern because certain Treasury officials have expressed opposition to reauthorization.

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TRIA Might Not Survive, RMs Warned

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