In the aftermath of the September 11, 2001 terrorist attacks, Congress passed the Terrorism Risk Insurance Act (TRIA). The Act established a shared responsibility between the insurance industry and the federal government for commercial property and casualty exposures against “acts of terrorism” in the United States.
TRIA was due to expire in December 2005, and in the months prior to the expiration, there was intense debate regarding whether to extend or revise TRIA. With the possibility that TRIA might not be extended, 47 states and the District of Columbia approved specific optional exclusions for terrorism coverage. The exclusions resembled the exclusions approved for use by insurance regulators following September 11, but before TRIA was enacted in 2002. However, with the expiration of TRIA just days away, on December 16, 2005, House and Senate negotiators agreed to extend TRIA through 2007. The extension is known as the Terrorism Risk Insurance Extension Act (TRIEA).
Significant Conditions of TRIEA
- TRIA no longer applies to commercial auto insurance, burglary and theft insurance, surety insurance, professional liability insurance (other than D&O), and farm owners multi-peril insurance.
- The triggering event increases from $5 million to $50 million after March 2006; and will increase to $100 million in 2007.
- Insurer deductibles will increase from 15 percent to 17.5 percent in 2006, and 20 percent in 2007.
- Federal share of insured losses exceeding the deductible will remain at 90 percent in 2006, but will decrease to 85 percent in 2007.
- The insurance industry must cover $25 billion in 2006 and $27.5 billion in 2007 before federal assistance is available.
The difference between this amount and the aggregate amount the insurers pay in deductibles and co-payments can be recouped from policyholders through a surcharge not to exceed 3 percent of the premium for covered lines per year.
The President’s Working Group on Financial Markets is required to report to Congress by September 30, 2006 regarding the long-term availability and affordability of terrorism insurance.