Aon: Cuts To TRIA Would Cause Shortage In Terror Cover

NU Online News Service, May 26, 3:44 p.m. EDT

Cuts to the Terrorism Risk Insurance Act proposed by the Obama administration would do serious harm to the availability of terrorism insurance, a report from insurance broker Aon said.

Earlier this month the Obama administration proposed cuts in the subsidies the program would receive in the event of a terrorist act over the next four fiscal years of the program, ending in 2014.

The cuts were part of the administration's revised budget blueprint designed to yield $17 billion in spending cuts for the fiscal year 2010.

The savings are expected to amount to $263 million over the period of 2010-2014.

In its report, "Global Risk Alert–TRIA in Jeopardy," Aon said under the administration's proposals some of the changes would entail the elimination of coverage for domestic terrorism; insurers' deductibles would increase as would co-insurance levels; and the loss trigger would also be increased. There were no specific numbers given.

Changes to the plan, Aon said, would mean market and capacity volatility and disruption to the property-casualty market "at a time when policyholder surplus is already declining due to asset write-downs."

Aon said it estimates that if TRIA's future were in question, 70-to-80 percent of the commercial property market "will revert to absolute exclusions of terrorism."

While this market has seen growth since 2002 that may eventually lead to more competition and choices in its current form, the proposed modifications would "vastly change the landscape for terrorism risk transfer in the United States," the brokerage said.

In a statement released shortly after the president's announcement, Cliston Brown, a spokesman for the Property Casualty Insurers Association of America, said the reason PCI lobbied for "this vital program" was that "we felt it was necessary to restoring the marketplace after the tragic events of Sept. 11, 2001."

Mr. Brown said TRIA "remains vital and we do not know if this proposal changes its efficacy, but we are going to study it carefully."