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Who Will Pick Up the Terror Tab?

How long will the government subsidize the insurance industry now that terrorism policy rates have dropped by 50 percent?

8Aug

The Terrorism Risk Insurance Act (TRIA) will expire at the end of this year, and as Congress prepares to debate a second extension of the act (the first passed in 2005), the stakes have changed.


For one, more than 60 percent of U.S. corporations now participate, and despite the absence of any triggering event on U.S. soil, the uptake rate over the past 2 years has been strong, particularly in such
sectors as utilities and higher education. Meanwhile, the Bush Administration, which backed off on demands that the private insurance
market absorb more of the risk when the act came up for renewal two years ago, may be far less flexible this time, as proponents push for a 10-year extension.


Enacted in 2002, TRIA established a federal "backstop" program that would provide partial compensation for insured losses in the event of a massive terrorist attack. The Administration said at the time that the act was a temporary measure to allow the private insurance industry to develop its own forms of coverage. But that has been slow to happen, and Aaron Davis, director of National Terrorism and Property Resources for Aon Corp., says another extension of TRIA is imperative to keep the insurance industry from total collapse if a substantial terrorist attack is carried out on U.S. soil.


Since 2002, premiums have dropped more than 50 percent, which may provide ammunition to those who believe that TRIA puts too much risk on taxpayers and not enough on private insurers. Few doubt that TRIA will be extended in some form, but when debate resumes in the Senate after the August break, expect to see strong differences of opinion as to just how far the government will or won't go in backing up the insurance industry. One major point of contention: the new bill would reduce the payout trigger point from the current $100 million in losses
to $50 million. In 2005 the Administration had wanted the trigger point raised to $500 million.


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