Tria is set to expire at the end of this year, but the Schumer Bill, introduced on Thursday by Senator Charles Schumer, would see the programme extended for another seven years.
The programme was launched in 2002 following the September 11 terrorist attacks. In the aftermath of the disaster, commercial insurers stopped providing cover for losses emanating from terrorist attacks owing to their unpredictable nature and the sheer scale of potential losses. Tria’s introduction allowed this to return, with the programme providing a 90% quota share following a terrorist incident where losses have exceeded $100m.
Tria’s introduction therefore meant insurers were able to continue providing cover to high-risk developments such as stadiums, shopping malls, ports and airports in high-risk areas.
It was originally set to expire at the end of 2005, but was extended for two years. Tria was extended once again in December 2007, although the current incarnation of the Act is set to expire on December 31, 2014.
But the Schumer Bill, should it be passed, will see Tria extended for seven years.
“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 Schumer said more needs to be done.
“This crucial bipartisan plan will reauthorise 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.”
Schumer introduced the reauthorisation legislation on Thursday, and secured cosponsorship from senators Heller, Reed, Kirk, Murphy and Johanns.
In order to gain support from the Republican party, two changes have been made to the current legislation.
Under the Schumer Bill, insurers will still be obligated to pay 20% of the prior year’s direct earned premium for covered commercial lines as a deductible. Once that deductible has been paid, the federal government will cover 80% of each company’s losses until total losses reach $100bn. This 80% currently requires insurers to make a 15% co-pay, but the new Bill will see this rise to 20%. This increase would be phased in incrementally over five years.
The second change sees the mandatory recoupment threshold rise to $37.5bn from the current level of $27.5bn, so that when the insurance industry’s aggregate uncompensated losses are below $37.5bn the government will be required to recoup the Tria payments outlaid to insurers.