After 9/11, Congress passed TRIA, the terrorism risk insurance act. They did this after insurance companies paid out more than $40 billion in claims from 9/11 and reinsurers – the companies that backstop the insurance companies – withdrew from the market. When the reinsurance market dried up, insurers stopped covering terrorism claims.
The result of this was that businesses could not get insurance to cover terrorist attacks like the attack on the World Trade Center. TRIA was renewed in 2007 and, in the absence of Congressional action, will expire on December 31st – 10 days from now. Given that Congress is in recess, that is not going to happen.
Some businesses won’t lose their coverage immediately, but some policies have a clause in them that voids the policy in the event of a claim if TRIA is not in effect. So, while that group of people won’t lose their coverage, if they make a claim, it will be denied, so, in effect, they will lose their coverage.
Industries such as real estate (large commercial buildings), transportation (airlines), utilities (power plants) and others depend on terrorism coverage as part of their business risk mitigation strategy. Assuming they don’t have any terrorism coverage and something happens, they would have to pay all the costs out of their own pocket. The good news is that a terrorist attack is pretty unlikely. So was the Sony attack.
Whether insurance companies will stop offering terrorism coverage like they did in 2002 is unknown. Whether insurance companies will cancel existing policies is also unknown. If TRIA is not renewed, IF they offer coverage, it will come either at a much higher price or lower coverage limits.
Events like the Super Bowl and the Soccer World Cup have terrorism coverage in the very unlikely event that some wing nut decides to make a statement. The World Cup almost didn’t play the final game a few years ago due to challenges in getting coverage.
If builders of large commercial projects cannot get terrorism insurance, banks would likely not lend them money – you get the idea. The potential ripple effect on the economy is significant.
One assumes that when Congress reconvenes in January they will take up the issue of TRIA. Hopefully, they will come to some sort of agreement that the President is willing to sign. If not, expect some changes in your commercial liability policy.
What happens between January 1 and when or if TRIA is resurrected is unknown, but those in commercial real estate and other industries are no doubt paying close attention.
The Connecticut Mirror – Senate’s failure to act on terrorism risk insurance roils insurance industry
Bloomberg – The unexpected threat to Super Bowl XLIX