Following the terrorist attacks of September 11, 2001, insurers backed out of the terrorism insurance market place prompting Congress to create a federal reinsurance backstop program in the Terrorism Risk Insurance Act (TRIA) of 2002, which also mandated that insurers make terrorism coverage available along with its property and casualty lines. This program was reauthorized in December 2019 to continue the program through 2027.
Current Legislation/RegulationH.R.26 - Terrorism Risk Insurance Program Reauthorization Act of 2015 (Public Law No.: 114-1)
What is the fundamental issue?
Following the terrorist attacks of September 11, 2001, insurers backed out of the terrorism insurance market place prompting Congress to create a federal reinsurance risk-sharing program the "Terrorism Risk Insurance Act of 2002" (TRIA), which also mandated that insurers make terrorism coverage available along with its property and casualty lines. TRIA, which was reauthorized in 2005 and 2007, expired on December 31, 2014, due to the failure of the Senate to pass a reauthorization measure in the 113th Congress. in its first act of legislative business in the 114th Congress, on January 7, 2015 the House of Representatives passed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015, by a vote of 416-5. The following day the Senate passed it by a vote of 93-4. The act reauthorized the Terrorism Risk Insurance Program for six years, through 2020.
I am a real estate professional. What does this mean for my business?
American businesses continue to rely upon the availability and affordability of terrorism risk insurance. The federal backstop program is a critical component of the private/public partnership created to protect the nation's business sector by ensuring that adequate insurance coverage is available to effectively manage economic risks. This has been a particular concern for those in commercial real estate who need to have terrorism coverage in place in order to secure financing. Commercial mortgage-backed security (CMBS) borrowers face the threat of default and bond downgrades without adequate coverage. In the retail and multifamily sectors specifically, a jump in terrorism insurance premiums can reduce the value of commercial properties. If terrorism insurance becomes unavailable, this throws the financing into technical default.
Because of the importance of terrorism insurance coverage to commercial real estate, NAR supports the continued availability and affordability of coverage made possible by the federal backstop program of the “Terrorism Risk Insurance Act of 2002” and its extensions.
The program provides stability and creates a viable insurance market, with widely available coverage and affordable premiums, at virtually no cost to taxpayers. Sustaining a viable private market for terrorism insurance depends on the federal backstop. When TRIA is allowed to lapse, or if there is even a threat that it might, the terrorism insurance market in the U.S. is disrupted (as illustrated by the lead-up months to the reauthorizations in 2005 and 2007), and terrorism insurance coverage becomes both more limited and more expensive.
The Terrorism Risk Insurance Program briefly lapsed at the beginning of 2015, due to its expiration on December 31, 2014 as a result of the Senate not passing a reauthorization measure. Leadership in the House and Senate were quick to express disappointment that the program had not been reauthorized, and promised to make it a top priority in the 114th Congress. On January 7, 2015, in its first act of legislative business, the House passed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015, by a vote of 416-5. The following day the Senate passed it by a vote of 93-4.
H.R. 26 reauthorizes the Terrorism Risk Insurance Program for six years, through 2020. It makes some changes to the program to decrease the government's exposure to risk in the event of a terrorism event - it raises the "trigger" amount (the amount of losses which triggers the federal government backstop in the program) from $100 million to $200 million; it decreases the government's share in the losses above that point from 85% to 80%; and it increases the mandatory recoupment amount from $27.5 billion to $37.5 billion. Otherwise, it makes few changes to a program that has kept terrorism insurance affordable and available throughout the country since 2002.
As part of the reauthorization, several government studies were commissioned on terrorism risk insurance. The CBO released a study on the TRIA program, examining its history, how the current program works, its effects on insurance markets, and policy options for the future. Overall, this report was favorable towards TRIPRA. Additionally, the Treasury Department conducted a study on improving the certification process for the Terrorism Risk Insurance Program, which CIAT submitted comments on in March 2015.