US senator blocks terrorism risk insurance programme extension despite support from House of Representatives

Out-Law News | 17 Dec 2014 | 5:16 pm | 2 min. read

US laws limiting insurers' exposure to large claims in the event of a terrorist incident look set to expire at the end of this year after the US Senate failed to agree an extension to the programme before its winter break.

Reuters reported that Tom Coburn, a retiring Republican senator from Oklahoma, had wanted to make last-minute changes to a bill that would have extended the Terrorism Risk Insurance Act (TRIA) until 2021. Any changes would have required the further approval of the House of Representatives, which originally approved the bill last week but will not now return to Washington until 6 January 2015.

Insurance expert Nick Bradley of Pinsent Masons, the law firm behind Out-Law.com, said that the global insurance industry needed certainty on future arrangements quickly.

"The current terrorism risk environment is in constant flux," he said. "In 2014, both threats and acts of terror appear to have increased globally, the most recent of which happened only days ago in Sydney, Australia. It would seem imperative that all necessary action is taken, whether by governments or others, to ensure the continued availability of full, valid and effective terrorism insurance cover for consumers both in the US and globally."

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. The current programme, which expires on 31 December, would require the US government to cover 85% of an insurer's losses above a deductible calculated based on its annual income from premiums in the event of a terrorist incident, with support to the industry capped at $100 billion.

In order to trigger coverage under TRIA, an event must be certified as a terrorist act by the US government and result in aggregate losses to the industry of more than $100 million. This 'back stop' has not yet been triggered. The 'reauthorisation bill' would extend the programme to 2021, but increase the threshold for aggregate losses by $20m a year until it reaches $200m. It would also reduce the US government's contribution to 80% of losses above the deductible.

According to Reuters, Coburn had objected to inclusion in the bill of a new licensing system that would enable insurance agents and brokers to sell in multiple states. Coburn wanted states to be able to opt out of the licensing system, which he wanted to expire in two years.

The bill may be reintroduced to the House of Representatives and the Senate early in the new year. However, Reuters said that allowing the programme to lapse "could cause delays in financing approvals for large development programmes".

"We hope that next year, the House Republican leadership will work with us," said Charles Schumer, a Democrat senator from New York who had supported the renewal of the programme. "We hope the House will pass a bill quickly because billions of dollars of projects and hundreds of thousands of jobs are at risk."