Bills
| 3.23.22

Should a Federal Backstop for Terrorism Insurance be Reauthorized Through 2030? (H.R. 4634)

Do you support or oppose this bill?

What is H.R. 4634?

(Updated December 1, 2019)

This bill — the Terrorism Risk Insurance Program Reauthorization Act of 2019 — would provide a 10-year extension of the expiration date of the Terrorism Risk Insurance Act of 2002’s (TRIA) reauthorization to December 31, 2030. The Act, which includes the Terrorism Risk Insurance Program (TRIP), a  federal backstop for insurance providers in the event of another terrorist attack on U.S. soil like 9/11, is currently set to expire on December 31, 2020.

Argument in favor

The Terrorism Risk Insurance Act (TRIA) provides essential protection for insurers offering terrorism insurance. The federal backstop it provides through the Terrorism Risk Insurance Program (TRIP) is key to making insurers comfortable offering terrorism insurance to businesses and individuals, and allowing this program to lapse — or even running the risk of it lapsing — could jeopardize the availability of terrorism insurance. A long-term TRIA reauthorization will ensure that insurers continue to feel comfortable providing terrorism insurance and offering it to insurance consumers.

Argument opposed

With over a year to go until the TRIA expires, there’s ample time for Congress to consider ways in which the TRIA might be updated and improved to address modern challenges, such as cybersecurity. Rather than passing a simple reauthorization, Congress should take the time to look at ways to improve TRIA and TRIP for the next 10 years before passing a reauthorization. More broadly, it’s possible that competition in the market will push insurers to keep providing terrorism insurance even in the absence of the TRIA and TRIP.

Impact

Insurance purchasers; insurers; terrorism insurance; federal government; provision of a federal government backstop for terrorism insurance; Terrorism Risk Insurance Act (TRIA); and the Terrorism Risk Insurance Program Reauthorization (TRIP).

Cost of H.R. 4634

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Maxine Waters (D-CA) introduced this bill to reauthorize the Terrorism Risk Insurance Act (TRIA) over the long term. In remarks at a press conference to discuss the TRIA’s reauthorization, Rep. Waters said: 

“The Terrorism Risk Insurance Act (TRIA) was signed into law in the aftermath of the devastating September 11 terrorist attacks, which resulted in the largest insured losses from a non-natural disaster on record, making terrorism risk insurance coverage unavailable or extremely expensive. TRIA corrects this market failure and keeps terrorism insurance coverage affordable and available by creating a federal backstop in the event of another attack. Over the years, Congress has enacted several reforms to increase the private sector share of risk to the point that in the event of another terrorist event similar in size to 9/11, the private sector would bear 100% of the losses. Nearly two decades after TRIA was enacted, TRIA has thankfully never been triggered, and the program is working as intended, effectively protecting our economy from the costs of a terrorist attack and providing security for many of our nation’s hospitals, stadiums, schools and small businesses… Without a reauthorization, the program would expire at the end of 2020, but we could experience the harmful effects of a failure to reauthorize as soon as January of 2020. And so, I am pleased to put forth H.R. 4634, the Terrorism Risk Insurance Program Reauthorization Act of 2019, a bill that provides a ten-year clean reauthorization of TRIA… [R]eauthorizing TRIA for the long term is not a regional issue or a partisan issue.”

The American Land Title Association (ALTA) supports this bill. In an October 16, 2019 Coalition to Insure Against Terrorism (CIAT) letter co-signed by 67 other groups, it and the other letter signatories wrote: 

“The TRIA Program has been, and remains, extremely effective in achieving its primary purpose, which was to stabilize the market following 9/11 and to ensure the continued availability of terrorism coverage for commercial policyholders in the future. America needs a stable and reliable terrorism insurance market so that employers can invest in assets and create jobs without assuming the risk and liabilities of a terrorist attack. At almost no cost to the taxpayer, the Program has been the key factor in ensuring that the private insurance market has remained intact and continues to meet the needs of commercial policyholders during the on-going threat of a future terrorist attack—all while minimizing federal taxpayer exposure.”

Testifying on the issue of TRIA reauthorization at a House Financial Services Committee Subcommittee on Housing, Community Development, and Insurance and the Subcommittee on National Security, International Development, and Monetary Policy  hearing on October 16, 2019, Baird Webel, a specialist in financial economics at the Congressional Research Service (CRS), suggested that market pressure might make insurers continue offering terrorism risk coverage even without TRIA. Although Webel said “it seems possible, if not likely, that insurers would again seek to exclude terrorism losses” in the absence of TRIA, he also said, “It is possible that competitive pressure might cause insurers to cover terrorism risk even without TRIA.

However, the National Association of Insurance Commissioners (NAIC) disagrees with this perspective. Testifying before the House Financial Services Committee Subcommittee on Housing, Community Development, and Insurance and the Subcommittee on National Security, International Development, and Monetary Policy on October 16, 2019, Chlora Lindley-Myers, director of the Missouri Department of Commerce and Insurance, testifying on NAIC’s behalf, said: 

“The NAIC supports a long-term reauthorization of 7-10 years as we have not seen evidence to suggest that the insurance marketplace is capable or willing to voluntarily take on a substantial portion of terrorism risk absent a federal backstop. The potential extreme severity and unpredictable frequency for acts of terrorism makes this coverage one that insurers would likely choose to avoid if given the opportunity… Without TRIP, we believe terrorism risk insurance would become unavailable and unaffordable and we could revisit some of the same market disruptions and economic uncertainties the nation faced in the aftermath of the September 11 attacks. TRIP provides insurers with the security and certainty they need to allow them to offer coverage for acts of terrorism.”

House Financial Services Committee Ranking Member Rep. Patrick McHenry (D-NC) says a 10-year reauthorization is “kicking the can down the road,” and argues that Congress should update the TRIA to address cyberterrorism risks before reauthorizing it (which this bill doesn’t do): 

“We've had substantial changes internationally since the last reauthorization.  I want to make sure we do the right thing when it comes to cyber threats, and I don’t believe what we have currently in law is sufficient for that.”

Rep. French Hill (R-AR) agreed with McHenry, urging the Financial Services Committee to take a “hard look” at ways to “modernize or strengthen” TRIA before reauthorizing it. He said that the committee should look to “build on the program” through improvements.

This legislation unanimously passed the House Financial Services Committee by a 57-0 vote with the support of 45 bipartisan cosponsors, including 42 Democrats and three Republicans.

Nearly 350 organizations, including the American Property Casualty Insurance Association, Marsh LLC (an insurance broker), Independent Insurance Agents and Brokers of America (Big “I”), the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, Consumer Federation of America (CFA), and Reinsurance Association of America (RAA), United Educators, National Association of Professional Insurance Agents (PIA), National Association of Realtors (NAR), and U.S. Chamber of Commerce support this legislation.


Of Note: The Terrorism Risk Insurance Act (TRIA) was enacted after the September 11, 2001 terrorist attacks. The Institute for the Analysis of Global Security (IAGS) estimates that the attacks inflicted $10-13 billion in property and infrastructure damage alone (the major World Trade Center buildings accounted for $3-4.5 billion alone), as well as $40 billion in losses to the insurance industry.

TRIA was introduced in response to analysts’ warnings that “the disappearance of affordable terrorism risk coverage would negatively affect the larger U.S. economy due to the importance of commercial insurance in a variety of business transactions.”  

As a response to this concern, TRIA was introduced to establish the first federal backstop for terrorism risk insurance. Specifically, TRIA established the Terrorism Risk Insurance Program (TRIP) within the Treasury Dept. to provide federal reinsurance in the event of catastrophic losses. TRIA doesn’t cover terrorism losses directly; instead, it reimburses private insurers for a portion of their terrorism-related losses. 

Under TRIA, all U.S. property/casualty insurers are required to make terrorism coverage available, covering buildings, equipment, furnishings and inventory damaged by acts of terrorism, which is officially certified by the Treasury Dept. Nuclear, biological, chemical, and cyber attacks are usually excluded.

The original TRIA had three goals: 

  • Create a temporary federal program of shared public and private compensation for insured terrorism losses to allow the private market to stabilize; 
  • Protect consumers by ensuring the availability and affordability of insurance for terrorism risks; and
  • Preserve state regulation of insurance.

Coalition to Insure Against Terrorism (CIAT) Steering Committee Coordinator Martin DePoy says TRIA helped keep the U.S. economy functioning after the 9/11 terrorist attacks, when reinsurers and primary insurers abandoned the terrorism risk insurance marketplace, contributing to widespread job losses and damage to businesses dependent on terrorism coverage. DePoy says, “By making terrorism risk insurance available again at prices commercial policyholders could afford, TRIA helped reinvigorate the economy after the catastrophe of 9/11.”

Since its initial enactment, the TRIA has undergone additional reauthorizations in 2005, 2007, and 2015 (after a 12-day lapse when Congress failed to complete its work on the reauthorization at the end of 2014). Those additional reauthorizations have also increased private sector involvement.

During an October 1, 2019 episode of the podcast “Through the Music,” The Real Estate Roundtable’s president and CEO, Jeffrey DeBoer, said that businesses of all types need TRIA reauthorization: 

“Businesses and facilities of all types need to see the terrorism risk insurance program extended. This need applies to hospitals, all commercial real estate buildings, educational facilities, sports facilities, NASCAR and theme parks, and really any place where commercial facilities host large numbers of people."

The Treasury Dept. concluded that TRIP has been effective in making terrorism risk insurance available and affordable in the insurance market. Furthermore, in a 2018 report, the Treasury Dept. observed that 78% of all TRIA-eligible policies included terrorism risk insurance coverage, and that the take-up rate for terrorism risk insurance was fairly consist across regions (74% in the Northeast, 82% in the Midwest, 76% in the South, and 82% in the West).


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Terraxplorer)