In the wake of 9/11, insurers and their reinsurers began to exclude terrorism coverage from commercial policies because they could not adequately forecast loss exposure. Commercial lenders, however, required terrorism coverage and the result was an economic paralysis felt particularly in construction and development, leading to a job loss of approximately 300,000 according the White House Council of Economic Advisors.
Congress passed the Terrorism Risk Insurance Act (TRIA) in 2002, which created a public/private insurance risk sharing mechanism to help insure against losses resulting from a catastrophic terrorist attack.
The Coalition to Insure Against Terrorism (CIAT) represents more than 70 major organizations and trade associations across a wide range of business sectors whose members are all consumers of insurance. CIAT played a pivotal role in TRIA’s initial passage, and when Congress extended it in 2005, 2007 and in 2015. TRIA is now scheduled to expire on Dec. 31, 2020.
As recognized in the Department of Treasury’s 2018 report, the current program has been a tremendous success. TRIA has made it possible for businesses to purchase terrorism risk coverage for more than 15 years and helped to keep the economy moving in the face of continued terrorist threats while saving countless jobs in the process.
There is no evidence that private markets can develop adequate terrorism risk capacity without some type of federal participation. Acts of terrorism are man-made, infrequent, and potentially catastrophic, which means quantitative risk models have limited value when analyzing terrorism risk. The lack of available intelligence regarding potential terrorist threats further hampers the reliability of traditional actuarial risk models.
TRIA provides a high degree of insulation to taxpayers. Current law requires that private policyholders and then private insurers use their own resources to pay claims for property damage resulting from a terrorist attack before any taxpayer resources are utilized. If federal share payments are needed in the aftermath of a truly catastrophic terrorist event, those payments are recouped through a retrospective assessment on commercial policyholders.
Previous reforms to the program have further minimized taxpayer exposure making additional reforms unnecessary. In fact, the key “dials” in the program’s risk sharing formula are already effectively indexed to premium growth at both the company and industry level, such that the federal share will continue to decrease in future years even if Congress makes no changes to the program beyond the expiration date.
Congress must move quickly to enact a “clean” long-term reauthorization of TRIA.
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