December 13, 2005
As of December 7th, 2005, both the United States Senate and House of Representatives had passed bills extending the Terrorism Risk Insurance Act of 2002 (TRIA) that is slated to expire on December 31, 2005. The problem is that the two chambers passed different versions of a TRIA extension that have to be resolved prior to TRIA being extended beyond the 1st of the year. Staff for both chambers are currently working on crafting a compromise.
TRIA was created in response to the September 11th, 2001 terrorist attacks that resulted in $40 billion in insured claims. Following that event, the commercial property and casualty insurers informed Congress that they would pull out of the terrorism insurance market unless a federal backstop was created to insulate the insurance carriers against catastrophic losses resulting from terrorist events. Following a year of political maneuvering, TRIA was finally signed into law in 2002, and has been extended since that time.
In creating TRIA, the federal government assumed responsibility for covering a significant portion of exposure from insured losses resulting from a terrorist event. In return for the federal backstop, the insurance industry was required to provide affordable terrorism insurance coverage. The insurance industry has zealously argued that TRIA should be extended because the insurance industry is still unable to assess the risk of terrorism and as a result is unable to provide affordable terrorism coverage without a continuation of the federal backstop. The United States Department of the Treasury has taken the position that extending TRIA as it is currently written would chill the ability of private markets to create terrorism insurance coverage without a federal backstop.
The availability of affordable terrorism coverage is essential for community associations that are under development, high rise condominiums and community associations that are located in high risk areas.
The version of TRIA that is slated to expire at the end of 2005 requires that losses from a single terrorism event must reach $5 million before the federal program would kick in and cover a significant portion of the loss. Under both the Senate and House passed versions of an extension bill, the losses from a single terrorism incident in 2006 must reach $50 million and in 2007 must reach $100 million before the federal program would provide coverage for losses resulting from a single terrorist event. It is expected that the compromise bill will include these thresholds.
As the 1st session of the 109th Congress winds down, there is hope that an extension of TRIA will be finalized before the December 31st expiration date. Members should monitor this "Heads-Up" section of CAI's website for the latest TRIA news.