Congress allows terrorism protection to expire

WASHINGTON – With the beginning of 2015, businesses no longer have federal insurance coverage against acts of terrorism.

Congress allowed federal insurance coverage against acts of terrorism on businesses to expire, throwing the insurance industry into a quandary, reluctant to cover such attacks.

As WND recently reported, expiration of this coverage will have an adverse impact on loans for real estate, the construction market, transportation and the utility sector nationwide.

Congress failed to renew the Terrorism Risk Insurance Act, or TRIA, which originally was passed following the terrorist attacks on the World Trade Center and the Pentagon on Sept. 11, 2001.

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The TRIA was renewed in 2005 and 2007 but now has lapsed until Congress acts on it.

The problem arose after some congressmen sought major changes in the program following Senate approval its extension by a 93-4 vote last summer.

Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, sought to raise the trigger for federal coverage from $100 million to $250 million for events that didn't involve weapons of mass destruction, such as nuclear, chemical and biological attacks on a population. He also sought offsetting spending cuts in the budget to pay for federal coverage.

The House then went on to pass the amended legislation 417-10, but the Senate adjourned before differences in the language of both houses could be worked out.

Mike Becker, national executive vice president and chief operating officer of the National Association of Professional Insurance Agents, or PIA, said that he was "shocked and dismayed" over Congress allowing the legislation to lapse.

"Disagreement won the day, and politics took precedence over protecting the American people," Becker said.

A lapse of TRIA, he argued, "will not only be devastating to the American economy, (but) it will also put our national security at risk."

A major terrorist attack occurring without the TRIA in effect "will be far more disruptive to the U.S. economy than one where TRIA is in place," according to Dr. Robert Hartwig, president of the Insurance Information Institute.

"Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real-estate industries, among others," he said.

"Congress allowed a program to expire that has proven to be a success," said Carolyn Snow, president of the Risk Management Society.

"Since its inception, TRIA has stabilized the marketplace by providing adequate capacity at affordable rates," she said. "Its expiration will almost certainly cause rates to rise, placing many lending agreements in jeopardy and forcing some organizations to self-insure or simply go without.

"RIMS and many other organizations have been pushing Congress to pass an extension for the past two years, but Congress senselessly ignored those concerns and waited until the very last moment," she added. "This delay has ultimately led to the worst possible outcome."

More than 60 percent of businesses have terrorism insurance coverage. With the lapse in federal coverage, however, businesses and insurers will have to bear all of the financial responsibility for losses due to a major terrorist attack.

As a consequence, terrorism insurance would not be included in large projects, which could have a ripple effect throughout the economy.

TRIA provides government backing against terrorism related financial losses when they exceed $100 million and provides up to a total $100 billion annually in coverage.

The federal government's role would be to act as a reinsurer, an insurer of insurance companies, in the event of a terrorist attack.

"It's very hard to conceive of the kinds of losses that can be associated with a terrorist attack," Leigh Ann Pusey, president and CEO of the American Insurance Association recently told PBS. "They're well beyond the capacity of the insurance market right now to provide that. So, what we learned after 9/11 was that insurance had been basically a natural part of coverage but, after 9/11, the market retreated because all of a sudden it realized that this was a huge potential risk."

Following the 9/11 attack, insurance payments were extensive. Some $4.7 billion was paid out for property damage to the World Trade Center towers, some $8.1 billion for other property damage and $4.7 billion in aviation liability.

Additionally, $14.2 billion went for business interruptions, $2.6 billion for workers' compensation, $5.1 billion in general liability, $1.3 billion in life insurance and another $12.3 billion for event cancellations.

Pusey said that it took the TRIA to get the private market back into providing coverage for economic security, which would be matched with the government's national security efforts.

"Insurers are sitting on 20-percent deductibles of their premiums," she said. "What that really translates to is, for some companies, as much as $1 billion, $2 billion of insured losses they would pay before they tapped that (government) backstop. And they're paying a percentage of that backstop even after they have met the deductible."

With TRIA's expiration, insurance companies have to undertake contingency plans.

"They're going to look at their exposures," Pusey said. "And I believe over the coming weeks we are going to see more and more market reaction to this.

"What that might mean is capacity will shrink over time, and the price of this might go up in certain markets," she said. "This isn't just about tall buildings in New York. It's also properties and businesses all around the country."

As a consequence, Pusey said that some projects will inevitably be delayed, since loans require the type of financing that is backed by insurance coverage and protection.

F. Michael Maloof, senior staff writer for WND/ G2Bulletin, is a former security policy analyst in the Office of the Secretary of Defense. He can be contacted at [email protected]..