Impact of TRIA Expiration

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Impact of TRIA Expiration

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• Nathan Bacchus, RIMS Sr. Government Affairs Manager

• Elizabeth Guimaraes, Director, Risk Management, Nova Southeastern University, Inc.


What to Expect

• Gain an understanding of why the TRIA program was created and how it works.

• Appreciate the program's importance to risk professionals, the industry and the economy as a whole.

• Determine ways you can get involved in advocating for a long-term extension of the program.


Agenda

• RIMS Position

• History of TRIA

• Why TRIA is Important

• Arguments For/Against TRIA

• How You Can Get Involved

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RIMS Position• Strongly support permanent/long-term

extension

• Public/private partnership

• Orderly & efficient response to acts of terror

• Address Nuclear, Biological, Chemical and Radiological (NBCR) Coverage

• Clarity

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History and Evolution of TRIA

• Before September 11, 2001 losses from terrorism events were included in GL policies.

• Fears from late 2001 and into 2002 that lack of coverage posed a serious threat to many industry sectors and entire U.S. economy

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• A 2002 survey found that “$15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance.

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• November 26, 2002 - The Terrorism Risk Insurance Act was signed into federal lawoGovernment and private insurers share in

losses from terrorism inside the U.S.

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•Minimum threshold of $5 million & 3 year duration

• insurer deductible of 7% of earned premium increasing to 15% by the end of 2005

•Requirement that every insurer make terrorism coverage available

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2005 Extension

•Established triggers: aggregate industry losses $50 million in 2006 and $100 million for 2007

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• Increased insurer deductible to 17.5% in 2005 and 20% in 2007; reduced the federal share of losses from 90% to 85% in 2007

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2007 Extension

• Removed requirement that a covered act of terrorism be committed on behalf of a foreign person or interest

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How TRIA Works

Certain criteria must be met before the federal government is required to step in

1. An individual act of terrorism must result in losses in excess of $5 million in the United States or to U.S. air carriers or sea vessels.

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How TRIA Works

2. This act must then be certified as an act of terror by the U.S. Secretary of the Treasury, Secretary of State, and Attorney General.

3. Aggregate insurance industry losses from certified acts of terrorism must exceed $100 million.

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Defining “Act of Terrorism”

Violent or dangerous act toward human life, property, or infrastructure

Results in damage within the United StatesCommitted by individual(s) acting as part of an

effort to coerce the civilian population or to influence the policy or affect the conduct of the U.S. Government by coercion

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Loss Sharing Under TRIA

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NBCR CoverageNot explicitly included/excluded under TRIA

Language offered in 2007, but not adopted

2008 GAO study

• Coverage generally unavailable

• Insurers generally exclude coverage from property coverage

Coverage generally offered in WC, Group Life, and Health coverage b/c of states

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Why TRIA is Important• TRIA allows insureds to obtain adequate

coverage at affordable prices

- Without actuarial data, it is not possible to project sound rates for insurance coverage

- Workers’ Compensation insurance requires coverage for workers in the event of injury or illness due to a terroristic act

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Why TRIA is Important

Workers’ Compensation insurance requires coverage for workers in the event of injury or illness due to a terroristic act

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• Without coverage many businesses will be forced to self-insure

- Most businesses cannot afford to absorb the costs of terrorism related losses, even with aid from state and federal agencies

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• Terrorism Risk Insurance is required to procure lending

- Most financial institutions have required terrorism coverage since the 9/11

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- A sample agreement reads as follows:

"insurance with respect to the Improvements and the Personal Property insuring against any peril now or hereafter included within the classification “All Risk” or “Special Perils”

(including, without limitation, fire, lightning, windstorm, hail, terrorism and similar acts of sabotage, explosion, riot, riot attending a strike, civil commotion, vandalism, aircraft, vehicles and smoke), in each case (A) in an amount equal to 100% of the “Full Replacement Cost,”…"

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• Other coverage lines may also be affected

- We have already seen the impact on workers’ compensation coverage

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Marketplace Uncertainty

• Increases of up to 10% for companies w/urban concentrations

• 53% of companies expected to see increased rates

• Standalone policies being offered

• Sunset provisions, non-renewals, etc.

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Opposing Views• Only helps major metropolitan areas

• Can terrorism be modeled as other lines?

• High government cost/Bailout of insurance companies

• TRIA=NFIP

• Reinsurance available

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More than Big City Issue

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Modeling Terrorism Coverage

• Not accidental

• Unpredictable/Random

• Events rare but losses from one single event could be catastrophic

• Confidential information

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Differences from Bailouts & NFIP

• Not primary insurer or major creditor under TRIA

• TRIA is reinsurance

• Only cost government money in the event of catastrophic attack

• Recoupment mechanism in place

• Government has responsibility

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Reinsurance Capacity?

• Reinsurance industry does have available capacity generally

• Same issues with modeling terrorism• 2014 PWG report found industry “does not

have capacity to provide reinsurance”o Estimates $6 to $8 billion reinsurance available for

terrorism

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Congressional Outlook• Series of House & Senate hearings

• New leadership of HFS and Senate Banking

• Huge turnover since last extensiono28 members of HFS new

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Congressional Outlook

SB 2244, Introduced April 10, 2014• Bipartisan Senate Banking agreement• Increases copay from 15%-20%• Recoupment from $27.5 B to $37.5 B

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Congressional Outlook

• House Financial Serviceso Transition to NBCRo Far less government responsibilityo Far more taxpayer protectiono Certification Processo Extension length

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What Can You Do?

Contact member(s) of Congress

•Particularly in districts of HFS members

Legislative Alerts

Attend RIMS Legislative Summit

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Questions, Final Comments and Contact Information

Nathan [email protected]

Elizabeth [email protected]

Impact of TRIA Expiration

Documents

Transcript of Impact of TRIA Expiration