December 19, 2005
Less than two weeks before the Terrorism Risk Insurance Act of 2002 (TRIA) was slated to expire, the United States Senate and House of Representatives passed a compromise bill that will extend TRIA two years beyond the December 31, 2005 expiration date. President Bush is expected to sign the scaled-down extension of TRIA before the end of the year.
As noted in the December 13th installment of Heads-Up, TRIA was created in response to the catastrophic insurance claims made as a result of the September 11th terrorist attacks. Since commercial property and casualty insurers were pulling out of the terrorism insurance market, Congress initially passed TRIA to provide a federal backstop to insulate insurance providers from disastrous claims. In return, insurance providers were required to provide affordable terrorism coverage.
In lobbying for an extension of TRIA, the insurance industry has argued vehemently that TRIA should be extended because the industry is still unable to assess the risk of terrorism and provide affordable coverage. The US Department of the Treasury, in a report released during the summer, opined that TRIA should not be extended since the program would chill the insurance industry from creating terrorism coverage without a federal backstop.
Under the bill passed by the Senate and House of Representatives, the losses from a single terrorism incident in 2006 must reach $50 million and in 2007 must reach $100 before the federal program would provide coverage for losses. TRIA currently requires a loss of $5 million before the federal program kicks in. The legislation also raises insurance industry deductibles, co-payments, and the financial exposure of the insurance industry.
Check in regularly to Heads-Up for an announcement when President Bush signs the legislation into law.