PCI, AIA Laud Treasury Extension of TRIA Availability; Urge Further Action to Extend Statute

June 21, 2004

Both the Property Casualty Insurers Association of America and the American Insurance Association issued bulletins lauding the Treasury Department’s action in extending the availability provisions of the Terrorism Risk Insurance Act in all commercial property/casualty policies until December of 2005, when the entire Act is due to expire (See IJ Website June 18).

Both associations also used the Treasury Department’s decision as an opportunity to urge Congress to extend TRIA beyond its current expiration date. They pointed out that while the “make available” extension for commercial lines reduces a certain level of uncertainty, the overall problem posed by TRIA’s demise remains.

Julie Gackenbach, PCI assistant vice president, federal government relations, pointed out that while the extension represented progress, “the make available provision highlights the business and market problems associated with TRIA’s looming expiration date and points to the need for swift congressional action to extend the underlying program.

“Unless TRIA is extended in 2004, policyholders whose coverage extends into 2006 and their insurers will not know whether TRIA’s financial backstop will exist for the full term of their coverage. This will make it difficult, if not impossible, to accurately price such coverage and will likely dramatically reduce the availability of terrorism insurance to business consumers. Such an outcome can only harm the economic recovery already underway,” Gackenbach observed.

The AIA stressed that “insurance policies that rely on TRIA are written every day of the year, generally for a 12-month term (although some commercial property policies covered by TRIA are multi-year). Therefore, policies written after January 1, 2005 will have a coverage term that extends beyond the life of the TRIA federal backstop. As a result, insurers will have no choice but to evaluate every policyholder considered for coverage during this period as if the backstop does not exist for part of the coverage period.”

“Because Treasury has now decided that commercial insurers must make terrorism coverage available for policies written at any time during 2005, insurers and policyholders will be exposed during the part of the coverage term that that runs beyond TRIA. Policyholders, state insurance regulators and insurers understand that this potential mismatch between policy periods and TRIA’s expiration makes it absolutely critical that Congress acts this year to extend TRIA beyond December 31, 2005,” stated Stef Zielezienski, AIA vice president and associate general counsel.

“Extension of the make available requirement is inextricably tied to an extension of the program,” Gackenbach continued. “Treasury has taken the first step toward continued market stability by making an timely decision on extension of the make available provisions and it is now time for Congress to act to provide a two-year extension of the program. Failure to extend the program this year, coupled with the requirement that insurers provide coverage in 2005 for policies that extend into 2006 would cause significant problems in the marketplace, including confusion for policyholders as well as insurers.”

The AIA concluded its bulletin with a warning that “failure to extend TRIA beyond its current sunset date of December 31, 2005, will create tremendous uncertainty and potential market upheaval for both commercial policyholders and insurers beginning as early as this fall, when annual policies for coverage starting after January 1, 2005, are considered and negotiated.”

Topics Carriers Policyholder

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