Insurers call for swift renewal of US terrorism risk insurance laws

Out-Law News | 11 Sep 2014 | 12:47 pm | 2 min. read

Large global insurers are urging lawmakers in the US to quickly approve the renewal of a law limiting their exposure to large claims in the event of a terrorist incident.

Aon, AIG, Swiss Re and Lloyd's of London are among the 400 companies and industry bodies that have signed a letter asking the House of Representatives to "move forward in authorising" the updated Terrorism Risk Insurance Act (TRIA) "as soon as possible". TRIA is due to expire at the end of this year, but legislation to extend the programme for a further seven years was passed by the US Senate in July.

Insurance expert Nick Bradley of Pinsent Masons, the law firm behind Out-Law.com, said that the industry's intervention on the issue was timely.

"On the anniversary of the 9/11 attacks, and with many jurisdictions across the world facing a heightened security threat as a result of the activities of organisations such as Isis and other extremist groups, the importance to commercial organisations of having full, valid and effective insurance cover for losses arising from acts of terrorism - whether in the US or elsewhere - could hardly be more relevant at this moment in time," he said.

Originally introduced in 2002, TRIA is designed to keep terrorism risk insurance available and affordable for businesses by providing insurers with an assurance of government support in the event of a catastrophic attack. Total insured property losses following the 9/11 attacks on the World Trade Centre in New York and the Pentagon in Washington, DC reached over $25 billion – more than 20 times those from the second most costly incident, the 1993 NatWest Tower bombing in London, according to figures from industry body the Insurance Information Institute.

In order to trigger coverage under TRIA, an event must result in losses exceeding $5 million in the US and be certified as a terrorist act by the US government. The event also has to result in aggregate losses to the industry of more than $100m. The US government will then cover 85% of the insurer's losses above a deductible calculated based on its annual income from premiums, with its support to the industry capped at $100bn. The renewal bill passed by the US Senate would extend the programme to 2019, but reduce the US government's contribution to 80% of losses above the deductible.

In their letter, the companies and industry bodies said that 9/11 had "fundamentally changed the landscape for insuring against the risk of terrorism in the US". Insurers had been forced to pull out of the marketplace, with an estimated loss of over 300,000 jobs, before TRIA was initially enacted, they said.

"TRIA has made it possible for the American economy to get the coverage it needs while protecting the taxpayer," they said in the letter, a copy of which was seen by Out-Law.com.

"By maintaining our economic stability in the face of ongoing terrorist threats, TRIA serves as a vital public-private risk sharing mechanism. TRIA fosters certainty in the marketplace by ensuring that private terrorism risk insurance coverage remains commercially available at virtually no cost to the taxpayer. Without the backstop that TRIA provides, the private insurance market would simply be unable to provide adequate levels of terrorism risk insurance," the letter said.