Terrorism Risk Insurance Act (TRIA) to expire

June 7th, 2004 by Julie Ferguson

The three-year Terrorism Risk Insurance Act (TRIA) is set to expire December 31, 2005 unless Congress acts to extend it. This is of great concern to insurers who will soon be negotiating and writing business insurance policies for 2005 and beyond. Any policies that are written after 1/1/05 will not be fully protected by federal backstop insurance.

An industry coalition of concerned insurance parties is petitioning Congress to extend TRIA, stating that “Without a risk-spreading mechanism, the right attack could very well bring the insurance industry to its knees, and significantly destabilize our economic infrastructure.”

Although the original measure was intended to be a bridge, industry spokespeople are united in calling for an extension as being essential for the stability of the industry. The following were among the points made in Senate banking Committee testimony:

“The commercial property-casualty insurance sector continues to lack the financial capacity to handle catastrophic terrorism losses on its own. Certain plausible event scenarios estimate insured losses from another catastrophic terrorist attack on U.S. soil could exceed $250 billion, far exceeding the entire commercial property-casualty industry’s estimated capacity.

“Terrorism risk cannot be modeled or predicted. Because terrorism defies the normal underwriting and rating principles, that limits the ability of property-casualty insurers to advance a private mechanism for that risk. For example, the complex and deliberate nature of terrorism prevents insurers and policyholders from using loss control as an effective tool to minimize the risk.”

Backstop insurance is of particular concern in workers compensation. Workers comp is different from other types of insurance where events occur and they are paid for within a short amount of time. Workers comp claims have a long tail by their very nature, meaning that payment can extend over many years after the original event. Insurers must maintain reserves to cover the expected cost until the claim is closed.

With the September 11 event, workers comp insurance was on the line for the death benefits for workers killed in the attack; it is also the “exclusive remedy” for any workers who sustained injuries during the attack, or who were in the “course and scope” of employment during the extensive cleanup projects in the aftermath of the attack. Recently, we’ve seen alarming reports that the dust from the World Trade Center attacks is more toxic than originally estimated, and that the associated range of health problems may be severe. We may have only seen the tip of the iceberg in terms of survivor health problems. This is a dramatic example of the “long tail” claims that can be associated with workers comp.
For more on this topic:
Terrorism risk and workers compensation
Workers Comp and Terror: The Long Shadow

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