As any business or organisation with assets in the United States knows, 2014 and the first few days of 2015 were a period of extreme uncertainty related to the future of the US Terrorism Risk Insurance Act, or TRIA.
This programme, created in the aftermath of the 9/11 attacks, established a mechanism for a public-private share of terrorism insurance losses. It has proved critical to ensuring that commercial consumers of insurance, with assets in the United States, are able to obtain adequate terrorism coverage at affordable prices.
Before the 9/11 attacks, losses from terrorist events were typically included in general insurance policies. The risk was considered negligible and, therefore, did not come with a specific cost to the insured; however, this all changed following 9/11. Insurers re-assessed the risk of terrorism and concluded that such coverage would be excluded from general insurance policies in future. Terrorism coverage became available only through specialised policies that came at a very high, and often unaffordable, cost to insureds. This lack of coverage posed a very real threat to the US and global economies, as many real estate and development projects were postponed or canceled due to problems securing loans without adequate terrorism coverage.
The TRIA response
The TRIA programme, established in 2002, was meant to address this issue in several ways. First, it created a public-private cost sharing mechanism for acts of terrorism. The programme established a $100 million “trigger” that had to be reached before the programme would be set into motion. This first $100 million in losses was to be covered solely by the private industry. Once the trigger was reached, the private industry would have a further 20% deductible. After that deductible was met, the US government would then pay 85% of losses while the private industry would pay 15%.
Another critical component of the TRIA programme is its requirement that insurers offer terrorism coverage that does not differ materially from non-terrorism related coverage. This ensured that insureds could find adequate coverage at affordable prices. The third major component of the TRIA programme is meant to protect the American taxpayer by the creation of a recoupment mechanism for the private industry to repay, over time, any TRIA losses paid by the government.
Since its creation, TRIA has proved to be an unequivocal success. Coverage is widely available for nearly any organisation doing business within the United States. This is critical as nearly all lenders require proof of terrorism coverage before entering into any lending agreement. Additionally, rates have gone down significantly since the days immediately following 9/11 and have stabilised at levels that are affordable for the vast majority of insureds. This is true even in the most high-risk areas, such as New York City or Los Angeles.
The most recent six-year extension of TRIA, signed by President Obama on 12 January 2015 does make a few changes to the programme. The trigger will increase from $100 million to $200 million by 2020. The US government’s share of losses will decrease from 85% to 80%, and the amount the government will recoup from the industry in the event of a government payout will increase from $27.5 billion to $37.5 billion. These changes were largely expected and are unlikely to cause significant increases in terrorism insurance rates or decrease in overall capacity.
If your organisation has assets within the United States, it is important to discuss with your broker and/or insurer any potential impacts the changes to the TRIA programme could have on your coverage. If you have any questions about the programme itself, please feel free to contact me directly at firstname.lastname@example.org.
Nathan Bacchus is Senior Government Affairs Manager at
RIMS, the US-based risk management society.
FERMA Secretary General Edwin V Meyer, General Manager Risk and Insurance for Arcelormittal based in Luxembourg, commented:
“As an insurance risk manager for a company having significant assets in the United States, we have followed the pending renewal of TRIA with great interest. The ability to provide broad and affordable coverage against a disastrous terrorism event is crucial and given today’s environment, this must be a shared responsibility involving companies and the government. It is not one that insurers and insureds can bear alone.
With an ever increasing geopolitical risk landscape and rise in terrorism, the United States Congress decision to extend TRIA for a period of six years, will be viewed favourably by the governments of other countries to continue supporting similar arrangements.”