The Terrorism Risk Insurance Act would be reauthorized in its present form but with much greater industry liability for five years under legislation to be unveiled today by House Financial Services Committee Republicans.
That represents a compromise from an earlier draft, which proposed to extend the current program for three years, but remains in contrast to legislation reauthorizing the program reported to the Senate floor June 3.
The Senate bill extended the program in its current form for seven years, but did increase industry co-shares by one-third under a five-year phase-in period.
Under the House bill, dubbed the TRIA Reform Act of 2014 from the earlier Terrorism Risk Insurance Modernization Act or TRIM, no changes would be made in the current program for 2015.
But it calls for gradually increasing the program trigger for all non-nuclear, biological, radiological, and/or chemical (NBCR) events, from $100 million to $500 million by 2019, effectively phasing out the program for non-NBCR events.
In releasing the proposal, the House FSC Republican leadership says, “The TRIA Reform Act strengthens vital taxpayer protection and encourages more robust private-market participation without curtailing the program’s fundamental functions.”
As in the earlier draft, it would reduce the federal co-pay share of insurers’ losses for non-NBCR-covered events over the course of the reauthorization from 85% to 80%.
It also requires greater industry “skin in the game” through taxpayer repayment provisions by benchmarking the industry’s loss retention level to the sum of its deductibles.
It also reduces taxpayer involvement by clarifying the terms of the mandatory recoupment mechanism, and increases the assessment rate to compensate taxpayers for the value of their TRIA investments from 133% to 150%.
The legislation does address technical concerns raised by the industry. For example, it establishes a fixed, 90-day timeline for certification of acts of terrorism—with a preliminary certification notice after 15 days.
House FSC officials say they did that so that policyholders will not be left wondering if their claims will be covered. It also gives the Treasury secretary the flexibility to base certification solely on the nature of the terrorist act, foreign or domestic, by removing the current $5 million threshold for event certification. That would likely trigger the program for events comparable to the Boston marathon bombing of 2013, which was not certified as a terrorism event.