One of the first actions of the new Congress was to reauthorize the Terrorism Risk Insurance Act (TRIA). The legislation had passed the House in December after extensive delays, but became snagged in the Senate in the final days of Congress. Reviving the government’s terrorism risk insurance program, which provides a backstop in which the government steps in to cover the bulk of losses in the event of a major terrorist attack, was an early demand on the new Congress.
The program was enacted in 2002 after the market for terrorism insurance collapsed following the 2001 terrorist attacks which caused losses of nearly $25 billion. Faced with the realization of this potential for enormous loss, the terrorism insurance marketplace significantly shrank. TRIA was originally designed to be a temporary program, but the hoped-for revival of the private market for terrorism insurance failed. The backstop, renewed in 2005 and again in 2007, stabilized the market. One of the aspects of the law was that it became mandatory for insurers to offer terrorism coverage. Without the law, coverage would not be offered by insurers or it would be at a very expensive price. The guarantee made private companies more willing to underwrite policies against terrorist attacks. The government has never paid out under the law.
The program has provided tangible benefits to the U.S. economy in the form of economic growth and job creation while ensuring terrorism insurance market stability, affordability, and availability. The legislation is important to economic sectors such as construction, real estate, hospitality, and major sports leagues, which feared crippling insurance costs if the program was not reauthorized because rates would soar or the market for terrorism insurance would collapse altogether.
The reauthorization legislation decreases the government’s exposure by gradually increasing the “trigger” at which the program starts to cover terrorist attacks to $200 million in losses, up from $100 million previously. The government’s share of catastrophic losses would be gradually lowered from 85% to 80%. As with previous TRIA reauthorizations, the primary responsibility for financial recovery is placed on the private sector in all but the most catastrophic of events.
Despite widespread support in the last Congress, the reauthorization was derailed by former Senator Tom Coburn who held up passage because the measure also included unrelated legislation that would establish a National Association of Registered Agents and Brokers to license insurance agents and brokers to operate in multiple states. The entity, which has the potential to bypass state regulators, was originally a goal of the Bush administration. With the retirement of Senator Coburn, the legislation, with the licensing authorization, passed easily.