A Compelling New Case for Terrorism Risk Insurance
Policy + Politics

A Compelling New Case for Terrorism Risk Insurance

With Congress itching to head for the exits, lawmakers are trying to come to agreement on an extension of the Terrorism Risk Insurance Act, a lesser-known piece of legislation that is nevertheless generally seen as “must pass” before the end of the year.

Multiple reports say that House Financial Services Committee Chair Jeb Hensarling (R-TX) and Democratic Sen. Chuck Schumer, a member of the Senate Banking Committee, have been holding negotiations since last week aimed at renewal of the legislation, which expires at yearend.

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TRIA, as the current law is called, was a response to insurance firms’ unwillingness to offer coverage for acts of terrorism after the 9/11 attacks that devastated the World Trade Center in New York, killing thousands. They were reluctant because potential losses were so high, and the likelihood and scope of terror attacks were hard to model.

Congress stepped in largely because without terrorism insurance coverage major development projects – malls, stadiums, office buildings – would never receive funding from investors, assuring that they never got built. Legislators crafted a plan by which insurers would be forced to offer terrorism coverage, but would be compensated for losses above a certain threshold.

Today, the threshold is $100 million in damages, after which the government covers the insurance company for the vast majority of additional losses.

However, Rep. Hensarling has been highly dubious about the need for the program in its current form. He believes the ability to model the likelihood and impact of terror attacks has improved greatly and that the effect of TRIA is now essentially government intervention in a market that could be successfully served by the private sector.

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Last fall, Hensarling dismissed suggestions that the law be renewed for another seven years without significant reforms, saying that rather than agree to that, he would support a six month extension to allow the next Congress to address the issue. A bill in the House, along with other differences from the Senate’s proposal, would have authorized a five-year extension.

Why This Matters:
With the U.S. economy finally looking as though it is kicking into gear, a failure to renew the Terrorism Risk Insurance Act could be a disaster. Construction projects would be delayed or canceled, as would other spending that would boost the economy and create jobs.

However, as multiple sources, including The Hill and Roll Call, are now reporting that negotiations have begun to coalesce around a proposed six-year extension, which would increase the threshold for government assistance from $100 million in losses to $200 million.

No legislative language was available as of Monday afternoon, but Rep. Steve Scalise, the House Majority Whip, said in a scheduling note that there would be a vote on the proposal this week.

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