Terrorism Risk Insurance Act Set to Expire After Bill Blocked In Senate

The Terrorism Risk Insurance Act (TRIA) is set to expire on December 31, 2014, after a House-passed bill to extend the program for an additional six years was blocked in the Senate. TRIA, which was created shortly after the terrorist attacks of 9/11, provides a federal insurance backstop in the event of a major terrorist attack. TRIA’s federal insurance backstop has allowed insurers to sell coverage for terrorist attacks at affordable rates while limiting their overall risk.

Under the current version of TRIA, the federal government is responsible for covering 85 percent of losses after the first $100 million in damages from a certified terrorist attack is paid by insurers. Once the government covers losses created by terrorist attacks, it may recover a portion of federal payments from commercial insurance policyholders. Since its creation, the federal government has not paid out for any terrorist attack, and terrorism risk insurance has become less costly for businesses.

Congressional Failure

On December 10, 2014, by a 417-7 vote, the House approved a reauthorization bill that would have extended the program for six years, raised the minimum trigger for activating federal action to $200 million, and gradually increased insurers’ share of the cost of losses from future catastrophic terrorist attacks by as much as $37.5 billion. The bill also contained unrelated provisions that would have amended the Dodd-Frank Wall Street Reform Act and created the National Association of Registered Agents and Brokers, a clearing house for insurance professionals seeking to register in states outside their home state.

TRIA’s reauthorization stalled on December 16, 2014, as outgoing Senator Tom Coburn refused to agree to a unanimous consent request that would have sent the bill to the full Senate for a final vote. In failing to take up the House’s bill before adjuring for the session, the Senate will allow TRIA to expire.

Potential Impact of Expiration

Although Congress will likely reintroduce a new bill aimed at renewing TRIA when it reconvenes in January, the impact of allowing TRIA to expire may be felt by businesses across the country. Insurers may seek to cancel terrorism policies after January 1, 2015, out of fear that a major terrorist attack could occur without a government backstop in place.

Businesses in the real estate, construction and hospitality industries may be especially hard-hit if rates for terrorism insurances increase in the absence of TRIA. Additionally, insurance industry representatives argue that the federal backstop created by TRIA is still necessary for economic stability and to ensure that developers can get affordable insurance for new projects.

This Regulatory Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.