Washington, DC – U.S. Senator Charles E. Schumer recently announced that he has reached a crucial bipartisan agreement on legislation that will reauthorize and extend the Terrorism Risk Insurance Act (TRIA) program, which is set to expire at the end of 2014. Created in 2002, the TRIA program is a critical priority for post-9/11 New York, as well as other high-risk cities. The program provides a federal backstop for insurance coverage against losses from devastating terrorist attacks. This insurance is crucial to spurring new development and protecting existing real estate in high-risk urban areas like lower Manhattan. TRIA has been reauthorized in 2005 and in 2007. After months of negotiating, Schumer introduced this reauthorization legislation April 10, which is cosponsored by Senators Heller, Reed, Kirk, Murphy and Johanns.
“In a post-9-11 New York, Terrorism Risk Insurance has proven to be an absolutely essential partnership between the government and the private sector that has turned rebuilding downtown Manhattan from a question to a certainty,” said Senator Schumer. “But there is still more to be done and this crucial bipartisan plan will reauthorize and extend the Terrorism Risk Insurance Act before it expires at year’s end. Redevelopment and economic growth should be encouraged in New York and other high-risk areas across the country, even in the face of unfathomable terrorist events, and I will work with my colleagues to get TRIA passed this year to preserve this essential tool.”
“By extending the Terrorism Risk Insurance Act, we will ensure the public and private sectors are in position to provide shared compensation for insured losses, protect our economy, and allow for continued investment for development and job creation,” said REBNY President Steven Spinola. “Members of the Real Estate Board of New York and countless others owe a debt of gratitude to Senator Schumer for his vigilance, foresight, and tireless efforts on this issue, and we hope the House to follows suit and immediately passes this important legislation.”
Key Details of Agreement:
The program, which was set to expire at the end of this year, will be extended for an additional 7 years. It will include two changes to the current program, which were necessary in order to gain Republican support for the seven year plan, that will be phased in over 5 years:
Co-pay: In the event of a terrorist attack, insurance companies would first be obligated to pay a portion of their premiums (20% of the prior year’s direct earned premium for covered commercial lines) as a deductible. Following that deductible payment, however, the program currently requires that the federal government cover 85% of each company’s losses until the amount of losses totals $100 billion. Each company is obligated to pay the other 15% of losses. In other words, after an insurer’s losses exceed its deductible it faces a 15% co-pay on all additional terrorism losses in conjunction with the federal government’s 85% recoupable co-pay.
- The proposed legislation would increase an insurers’ co-pay from 15 to 20%, with the government still covering 80% of each company’s additional losses. As stated, this increase would be phased in incrementally over five years.
Recoupment: When aggregate insured losses are less than $27.5 billion, the TRIA program currently imposes mandatory policy surcharges that require recoupment of federal payments made under the program. In other words, recoupment by the federal government is mandatory if the insurance industry’s aggregate uncompensated loss is less than $27.5 billion. Additionally, under the current program, when aggregate insurer deductibles and co-payments exceed $27.5 billion, TRIA provides the Secretary of the Treasury the authority to recoup federal payments above that amount based on pre-established factors and conditions.
- The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry’s aggregate uncompensated losses are below $37.5 billion the government will be required to recoup its TRIA payments outlaid to insurers.
After 9/11, it quickly became clear that private insurance companies would not provide coverage for losses related to terrorist attacks because attacks were deemed too unpredictable, and the potential losses too large. The TRIA program, however, has enabled private insurance companies to provide policies in high-risk areas and to high-risk developments such as stadiums, malls, ports and airports.
Now that his bipartisan bill has been introduced, Schumer urged his colleagues to work with him to quickly pass the legislation since policies are starting to be written that extend into 2015. Without certainty about the availability of the TRIA program moving forward, it is unclear whether policies will maintain the same protections as they have had in the past against losses sustained as the result of a terrorist attack.
The program was made necessary after the September 11th attacks when private insurers became reluctant to insure real estate owners for fear of massive losses from terrorist attacks. TRIA has reversed that negative trend by making the federal government the insurer of last resort for catastrophic losses with strong taxpayer protections that provide for recoupment of support paid out by the government. Schumer was one of the original authors of the TRIA legislation in 2002.
Source: Office of Senator Charles Schumer