Market Is Already Reacting to Possible Inaction on TRIA, Industry Rep Says

TRIA was first enacted in 2002 and reauthorized in 2007 as the Terrorist Risk Insurance Program Reauthorization Act (TRIPRA). The current authorization expires Dec. 31, 2014.

The hearing is among a number that have been held in the House and Senate in this Congress. No TRIA reauthorization bills have been introduced in the Senate. Bipartisan legislation introduced in the House last February, "the TRIA Reauthorization Act of 2013," H.R. 508, would extend the program for five years. The lead sponsor is Rep. Michael Grimm, R-N.Y.

Two bills introduced in the House in May would extend the program for 10 years.

The Senate hearing today was held against the background, that, as Crapo implied, the Senate may support only limited changes to the current program. That contrasts with the proposed approach by members of the House Financial Services Committee, where conservative panel members hope to have insurers assume more of the risk.

With the House approach obviously in mind, Douglas G. Elliot, president of commercial markets at The Hartford, testified that demands in Congress for a far stronger role for private markets for terrorism risk insurance could actually lead the industry to a "tipping point" whereby individual companies could decide to reduce their exposure to terrorism risk in order to maintain solvency.

That, Elliott said, "could result in upsetting the public-private partnership and undermining important sectors of the economy that depend on the availability of terrorism risk insurance," citing the construction, real estate, manufacturing, infrastructure and "small business generally." Elliot spoke on behalf of the American Insurance Association.

Bill Henry, CEO of McQueary, Henry, Bowles and Troy, Inc. (MHBT), told the committee members that agents and brokers are already seeing market reaction to the possibility that TRIA might not be extended. He testified on behalf of the Council of Insurance Agents and Brokers (CIAB).

Henry said commercial policies usually run for 12 months or more, and policies being placed today that run past Dec. 31 of this year contain exclusions for terrorism risk if the program is not extended.

"I anticipate that this will cause problems for long-term construction projects, workers' compensation, and other coverages as the end of the year draws closer," Henry said.

W. Edward Walter, President and CEO, Host Hotels & Resorts, made the same point while testifying on behalf of the real estate industry.

He cited what happened in 2005 as Congress worked to craft legislation that would replace the first TRIA bill, noting that the issuance of similar "sunset" clauses that would exclude terrorism risk coverage after year end "are again likely to result from a failure to quickly extend TRIA well beyond 2014."

Vincent T. Donnelly, President and CEO, PMA Insurance Group, said "Reauthorization of TRIA is critical to our customers and our business." He said the private-insurance markets are not willing to accept every risk—particularly unpredictable and potentially catastrophic risks like terrorism—"and a failure by Congress to reauthorize TRIA or a significant increase in TRIA's thresholds will force insurers and a significant amount of private capital out of high-risk markets." He testified on behalf of the Property Casualty Insurers Association of America.

He also said, "Having a terrorism risk insurance plan in place before the next attack protects our country's economic resiliency and security at nearly no cost to the taxpayers. The Terrorism Risk Insurance Act works and PMA and PCI strongly urge Congress to reaffirm its support for this critical national resiliency plan."

The Commercial Real Estate Development Association also issued a statement urging prompt renewal, as did the American Hotel & Lodging Association (AH&LA).

"The extension of TRIA is a high priority for the lodging industry in 2014, and it is vital that Congress take action now to extend the program," said Katherine Lugar, AH&LA president and CEO.

She said many hoteliers are increasingly faced with notices that their terrorism insurance will not be extended, "putting in jeopardy future capital projects and opportunities for economic growth and job creation."

She said it is important to note that the program "mandates that 'first dollar losses' be paid by insurers and policy holders and not by taxpayers or the government, and that TRIA is only triggered in the event of a major event and after individual insurer loss thresholds are met." 

Crapo said in his comments that one of his concerns is the need for clarifying how the government certifies a terrorist event. One way to do that would be to require the Treasury Secretary to make the certification within a given number of days following a terrorist event, Crapo said. 

"However, since insurers typically pay claims almost immediately, any timeline may result in unnecessary delays that may conflict with state law," Crapo said. "I am interested in the thoughts of our panel on how adjusting certification might impact the TRIA program, as well as any other areas of the program that could benefit from clarification," he added.