The House Financial Services Committee advanced legislation on Friday that was introduced by Rep. Randy Neugebauer (R-Texas) to reform and extend the federal terrorism risk insurance program.
Neugebauer, the chairman of the House Financial Services Subcommittee on Housing and Insurance, said the Terrorism Risk Insurance Act (TRIA) Reform Act resulted from dozens of meetings with policyholders, insurers, commercial lenders, realtors and securitizers.
“Congress passed the Terrorism Risk Insurance Act of 2002 in the aftermath of 9/11 for fear that the lack of available terrorism insurance could harm economic development,” Neugebauer said. “It was intended to provide a two-year transition period during which market participants could develop resources that would enable them to offer private terrorism coverage once the program expired.”
The private terrorism insurance market didn’t develop as fast as initially planned. Since the program was last authorized in 2007, however, Neugebauer said it has shown progress that enables Congress to begin transitioning to a model that is less dependent on taxpayer backing.
“Throughout the last year, we were encouraged to learn how evolved the terrorism risk insurance marketplace has become,” Neugebauer said. “We learned that since the advent of TRIA in 2002, markets have stabilized thanks to the presence of the program; we learned that risk management practices have improved; that terrorism risk modeling has advanced considerably; that underwriting has become more nuanced; and that the price of terrorism coverage has declined over 70 percent.”
The bill, which would extend the program for five years, calls for the program’s trigger to increase from $100 million to $500 million for terrorism events that are not nuclear, chemical, biological or radiological (NBCR). It would decrease the federal share of insurers’ losses from 85 percent to 80 percent.
“On market certainty, the TRIA Reform Act not only extends the program for five years, but it also makes no programmatic changes for the first year so the market has time to adjust,” Neugebauer said. “It clarifies and streamlines the terrorism certification process so policyholders are better protected and it maintains the program’s current activation and co-pay thresholds for less predictable, catastrophic NBCR events throughout the length of the reauthorization.
Improved terrorism risk modeling, record levels of insurance capital and improvement in capital markets and are encouraging signs for the future of the program, Neugebauer said.