With TRIA Renewal Efforts Killed, Some Predict Market Chaos

Property/casualty insurance industry groups, business associations and observers alike were quick to condemn the death of TRIA renewal for 2014. Without federal terrorism reinsurance in place for 2015, they predicted canceled coverage, market chaos and more unless the measure can be renewed in the new, Republican-led Congress.

“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 industry, among others,” Robert Hartwig, president of the Insurance Information Institute, said in prepared remarks. “A major terrorist attack occurring without a [TRIA] law on the books will be far more disruptive to the U.S. economy than the one where TRIA is in place.”

What’s more, TRIA has cost little, if anything, to U.S. taxpayers, Hartwig said.

“The program has cost U.S. taxpayers virtually nothing yet has provided tangible benefits to the U.S. economy in the form of economic growth and job creation while ensuring terrorism insurance market stability, affordability and availability,” Hartwig added.

Hartwig told Insurane Journal that regarding TRIA-related exclusions, carriers have been including contingent exclusions — that is, exclusions that would be triggered if TRIA is not renewed — since earlier this year, in policies whose effective dates stretched into calendar 2015.

“The non-renewal of TRIA will likely lead to lots of questions — the nature and extent of which will be affected by the length of time Congress takes to consider a new TRIA bill in the session that starts early next month,” said Hartwig.

Robert Rusbuldt, president and CEO of the Independent Insurance Agents and Brokers of America — the Big “I” — said in a statement that his association is profoundly disappointed by the Senate’s “premature decision to leave town” without extending the TRIA.

“The TRIA legislation had overwhelming bipartisan support in both chambers of Congress along with strong support from the White House. This inaction is particularly galling in light of the 417–7 vote in the House last week on this exact same legislation,” said Rusbuldt.

The Big “I” also expressed disappointment that the accompanying insurance producer licensing reform provision — the National Association of Registered Agents and Brokers Reform Act (NARAB) — got shelved.

“As if this weren’t bad enough, thousands of small business owners and their customers are waking up … with coal in their stockings after somehow NARAB II, agent licensing reform that has already passed both chambers in different bills, was also left on the cutting room floor,” said Rusbuldt. “We urge Congress to pass both common-sense, bipartisan pieces of legislation as soon as they convene for the 114th Congress early next year.”

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC), told Carrier Management, a sister publication of Insurance Journal, via email that lobbyists are still trying to get the House, Senate and president together in the next week to address the TRIA issue. Expectations, he said, are that “we need to hit the ground running when they return in January” in order to ensure a rapid renewal.

“We are incredibly disappointed in Congress for waiting until the lame duck [session] to reauthorize TRIA, for allowing politics to trump policy and for failing the American people by not providing protection for our economy from a terrorist event,” Grande added. “The country deserved better.”

On the other hand, A.M. Best is already chiming in on the issue, and said it “has determined that no rating actions on insurers previously identified as over-reliant upon [TRIA] are necessary at this time.”

The rating agency said it reviewed action plans from those carriers that addressed what they would do if TRIA was not renewed, and concluded that “sufficient mitigation initiatives were developed to avoid a material impact on a rating unit’s financial strength.”

Most observers had expected Congress to reauthorize the Terrorism Risk Insurance Act before it expires on Dec. 31. After all, the measure that created federal terrorism reinsurance had helped stabilize the market in the wake of the Sept. 11, 2011 terrorist attacks, and it had been renewed several times since. The Senate passed its own renewal bill back in June, and the House finally approved a six-year TRIA reauthorization just days ago, making approval of a bipartisan TRIA law tantalizingly close.

But then retiring U.S. Sen. Tom Coburn, an Oklahoma Republican, held up passage over an unrelated measure included in the bill that would have set up the National Association of Registered Agents and Brokers, an entity that would have potentially bypassed state regulators. Insurance industry pleas to set up a clean TRIA reauthorization bill fell on deaf ears.

In a formal statement, NAMIC lamented that the Senate adjourned for the year rather than taking a few days to address, and bypass, Coburn’s objections.

With the demise this year of TRIA renewal, predictions came quickly of an ominous market to come. Beyond Hartwig at the I.I.I., the American Insurance Association offered similar descriptions of impending trouble over time. NAMIC said TRIA’s expiration would cause “a tightening of insurance markets and terrorism coverage exclusions in commercial policies will go in full force.” NAMIC added that the new reality could force many commercial financial covenants and loans to go into technical default.

Even before the Senate’s Dec. 16 action, Fitch Ratings, in its 2015 outlook report, predicted the same fate that NAMIC, the AIA and others expect.

“Although private market stand-alone coverage has increased over time, it is unlikely that substantial private market capacity would arise as a substitute to [TRIA] coverage if the program is allowed to expire,” Fitch said in its report.

Aon, one of the world’s largest insurance brokers, also issued a statement saying that the firm is working with its clients to clarify the impact on their businesses. “Since its passage over a decade ago in the wake of the 9/11 terrorist attacks, TRIA has stabilized the insurance markets by fostering certainty, lowering the risk of investment and increasing much-needed capacity for American businesses,” Aon said in its statement.

“With the pending expiration of TRIA, Aon is working with clients to clarify the impact on their businesses and the insurance markets as they plan for 2015 policy renewals,” Aon said.

Looking ahead, business groups and insurance associations said they’d work to lobby Congress to pass a new TRIA law as soon as possible. They scrambled to keep the issue alive.

“We strongly urge the new Congress to take up the House-Senate negotiated TRIA reauthorization package as the first item of business when it returns in January in order to minimize disruptions,” AIA President and CEO Leigh Ann Pusey said in a statement.

RIMS President Carolyn Snow noted in prepared remarks that “the longer this lapse in coverage is allowed to continue, the more the U.S. economy will suffer.”

In other responses to TRIA renewal failure efforts, Coalition to Insure Against Terrorism (CIAT) spokesman Marty DePoy called the result “a bipartisan failure” that let down “American workers, American businesses and jeopardized U.S. economic and national security.” CIAT represents real estate, manufacturing, utility, construction, sports, entertainment and other industry sectors.

Thomas Bisacquino, president and CEO of NAIOP (the commercial real estate development association) said that the lack of TRIA renewal “will come at a significant cost to our economy, job growth and progress in the commercial real estate sector.”

The Real Estate Roundtable, a trade group that represents real estate industry leaders, issued a statement urging the House and Senate to make reinstatement of TRIA a top national priority when the new Congress convenes in January.

“It is extremely unfortunate that Congress failed to extend the Terrorism Risk Insurance Act (TRIA) before adjourning for the year,” The Real Estate Roundtable President and CEO Jeffrey D. DeBoer said in a statement.

“The economy is finally showing signs of sustained positive growth. This legislation is very important to maintain this positive growth,” said DeBoer. “With this congressional session now over, we are committed to working with the incoming Congress to finish the job started in this Congress. TRIA simply must be reauthorized as soon as possible to mitigate the economic damage that a lack of terrorism insurance will cause over time.”

DeBoer said that, without TRIA, a large number of commercial real estate projects around the country will now fail to get financing, leading to cancellations, job losses and lost tax revenue at the local level.

“This credit issue will only increase in time as more transactions come to market. In addition to commercial real estate, businesses and institutions of all types and sizes will be affected — hospitals, universities, sports facilities, amusement parks, museums and municipal infrastructure owners,” said DeBoer. “This law does not stop terrorist attacks. But it does disrupt terrorists’ goals of damaging our economy. The Real Estate Roundtable is committed to working with all members of Congress to get this essential work done early in 2015, so that we can minimize broader economic harm.”

Hollmer is editor for Carrier Management magazine and CarrierManagement.com. Insurance Journal contributed to this story.

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