Marsh President and CEO John Doyle makes the case for the federal backstop.
For our Company, the impact of terrorism is deeply personal. Marsh & McLennan lost 295 colleagues on September 11, 2001. We also witnessed the impact the $40 billion insured loss event had on our clients who were unable to secure insurance protection against future terrorist attacks directly following the tragic event.
Signed into law in November 2002, the Terrorism Risk Insurance Act (TRIA) restored insurance capacity at a critical time, and it continues to ensure a well-functioning terrorism risk insurance market 17 years later. TRIA and the subsequent Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) is the fundamental reason businesses have access to affordable and widely available terrorism insurance coverage options.
TRIPRA is set to expire at the end of 2020, which also happens to be a presidential election year. The longer it takes Congress to renew TRIPRA, the more disruption we are likely to see, not only in the commercial insurance market, but potentially the broader economy as well.
Insurers are already considering options to underwrite workers’ compensation policies effective on or after Jan. 1, 2020, without the potential financial protections provided by TRIPRA. If TRIPRA is significantly delayed, some insurers will be unwilling to offer terrorism coverage beyond the expiration, or they’ll significantly increase prices to cover the greater risk to their portfolios.
If the federal backstop ceases to exist, we could see a domino effect of increased pricing across multiple insurance lines, not just terrorism, with the likely result of major marketplace disruption. That, in turn, could affect business decision-making about hiring and investing, which can impact the economy.
Time is of the essence for Congress to reauthorize TRIPRA. The closer we get to its expiration, the more likely businesses – of all sizes and across industries – will start to experience challenges with their insurance programs, particularly in three main areas:
- Workers’ compensation: Employers, especially those with large concentrations of employees, could see a significant reduction in the number of insurers willing to write coverage for workers’ compensation insurance. This is particularly acute for nuclear, biological, chemical, and radiological (NBCR) perils, which are included in workers’ compensation policies, but not typically covered by reinsurers. Such attacks can lead to very large losses that, in some cases, can exceed the entire industry’s surplus. We are already seeing insurers and terrorism insurance buyers seek additional reinsurance limits and coverages out of concern that there is limited available capacity in the private market, particularly for NBCR events.
- Property: Without TRIPRA many industries would struggle to find sufficient or affordable property insurance coverage. TRIPRA also covers losses associated with business interruption, which can significantly expand the scope of economic losses from terrorism to include more than just those businesses that suffer physical damage.
- Cyber: Cyber insurance remains crucial in protecting businesses from the ever-present and escalating threat of cyber terrorism. TRIPRA covering cyber liability perils allows the marketplace to evolve and consider policies that can respond to emerging threats in addition to traditionally important privacy and data risks.
A long-term reauthorization of TRIPRA should allow the reinsurance market to continue assuming more risk and provide insurers with additional terrorism capacity. But without a public-private backstop for large-scale terror attacks, many companies would struggle to find sufficient — or affordable — insurance coverage.
Many members of Congress and the insurance and reinsurance communities share Marsh’s belief that a federal backstop remains crucial. A bipartisan bill — the Terrorism Risk Insurance Program Reauthorization Act of 2019 (H.R. 4634) — recently passed out of the House Financial Services Committee with broad bipartisan support. This is an encouraging first step. I urge you to call your Congressperson and tell them to swiftly consider the legislation to avoid marketplace disruption.
As the world’s leading insurance broker and risk advisor, Marsh understands the role insurance plays in the moments that matter for people and businesses. We enable risk taking. We guide clients through effective risk management strategies, and we step in when losses occur to help people and businesses get back on their feet. But when it comes to catastrophic terrorism risk, we can’t do that alone; our clients need TRIPRA.