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TRIA – the Terrorism Risk Insurance Act’s future

It appears increasingly unlikely that the Terrorism Risk Insurance Act will be renewed in its present form. A report filed by Treasury Sec. John Snow claims the robust economy is justification for its’ position that the Act is no longer needed, any renewal will stifle innovation and economic growth, and any renewal should factor in significant changes.
Referring to the potential for renewal of the Act, the report makes several recommendations, noting:
“Any extension of the program should recognize several key principles, including the temporary nature of the program, the rapid expansion of private market development (particularly for insurers and reinsurers to grow capacity), and the need to significantly reduce taxpayer exposure.”
Snow is recommending several specific changes, including:
“an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as Commercial Auto, General Liability, and other smaller lines, that are far less subject to aggregation risks and should be left to the private market.
While Snow is correct that the Act was intended to be temporary, that was more because it was the first of its kind, we had no experience in this area, and far better to sunset a law than to let an inappropriate, ineffective, or bad law stay on the books automatically.
That said, there are benefits to the insurance industry if the Act dies. These include:
— No more onerous TRIA paperwork. Insurers/brokers are required to offer TRIA coverage to all policyholders (for most property/casualty and some accident/health lines) and prove that by getting signatures on documents from insureds. Most insureds opt out of coverage, meaning brokers are required to obtain, file, and maintain records without compensation.
— Outside major municipal areas, the vast majority of policyholders are rejecting terrorism coverage anyway due to higher costs.
Among the problems with any decision to non-renew TRIA are the regulatory requirements of certain states, the lack of a market for terrorism coverage, and the expense of private insurance.
New York state requires terrorism coverage, and is generally seen as the most likely target of an attack. Rock and a hard place, indeed.
Property and workers compensation insurers are particularly vulnerable, due to their high exposure, potential long-tail claims due to environmental fallout from any terror act, and in the case of WC, unlimited financial liability. Make no mistake, another significant terror attack could have a huge financial impact, one that the present insurance markets would not be able to withstand. Scenarios indicate an exposure into the tens of billions under certain situations for property and WC insurers if a dirty bomb event occurs in a major metro area.
What does this mean for you?
Depends on where you work and what your “exposure” is
. If you are in a major metro area or near a “high value” target, rates could climb drastically. If not, rates may still increase as insurers seek to mitigate risk by increasing their reserves ahead of a catastrophic event.
I’ll look into the potential impact on workers comp in a future posting.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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