US Senator Charles Schumer has reached a crucial bipartisan agreement on legislation that will reauthorise and extend the Terrorism Risk Insurance Act (TRIA) program, which is set to expire at the end of 2014.
Created in 2002, the TRIA program is a critical priority for post-9/11 New York, as well as other high-risk cities. The program provides a federal backstop for insurance coverage against losses from devastating terrorist attacks.
TRIA has previously been reauthorised in 2005 and in 2007. After months of negotiating, Schumer introduced this reauthorisation legislation, which is cosponsored by Senators Heller, Reed, Kirk, Murphy and Johanns.
“In a post-9-11 New York, Terrorism Risk Insurance has proven to be an absolutely essential partnership between the government and the private sector that has turned rebuilding downtown Manhattan from a question to a certainty,” said Schumer.
“There is still more to be done and this crucial bipartisan plan will reauthorise and extend [TRIA] before it expires at year’s end. Redevelopment and economic growth should be encouraged in New York and other high-risk areas across the country, even in the face of unfathomable terrorist events, and I will work with my colleagues to get TRIA passed this year to preserve this essential tool.”
The programme will be extended for an additional seven years and will include two changes, which were necessary in order to gain Republican support for the seven year plan, that will be phased in over 5 years.
The first is that, in the event of a terrorist attack, insurance companies would first be obligated to pay a portion of their premiums (20 percent of the prior year’s direct earned premium for covered commercial lines) as a deductible.
Following that deductible payment, however, the programme currently requires that the federal government cover 85 percent of each company’s losses until the amount of losses totals $100 billion.
Each company is obligated to pay the other 15 percent of losses. In other words, after an insurer’s losses exceed its deductible it faces a 15 percent co-pay on all additional terrorism losses in conjunction with the federal government’s 85 percent recoupable co-pay.
The proposed legislation would increase an insurers’ co-pay from 15 to 20 percent, with the government still covering 80 percent of each company’s additional losses.
Secondly, when aggregate insured losses are less than $27.5 billion, the TRIA programme currently imposes mandatory policy surcharges that require recoupment of federal payments made under the program.
In other words, recoupment by the federal government is mandatory if the insurance industry’s aggregate uncompensated loss is less than $27.5 billion.
Additionally, under the current programme, when aggregate insurer deductibles and co-payments exceed $27.5 billion, TRIA provides the Secretary of the Treasury the authority to recoup federal payments above that amount based on pre-established factors and conditions.
The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry’s aggregate uncompensated losses are below $37.5 billion, the government will be required to recoup its TRIA payments outlaid to insurers.
Now that his bipartisan bill has been introduced, Schumer urged his colleagues to work with him to quickly pass the legislation since policies are starting to be written that extend into 2015.
