The year-end expiration of the federal Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), and the uncertain future of the law, is creating problems in the U.S. terrorism insurance market, according to the Insurance Information Institute (I.I.I.).
“The private sector does not have the capacity to provide insurance or reinsurance for terror risk to the extent currently provided by TRIPRA,” said Dr. Robert Hartwig, CPCU, economist and president of the I.I.I. “In the absence of the act, terrorism risk insurance would be less available and less affordable,” he continued, “And coverage for terrorist-caused economic damages would likely be more costly, or limited in scope, if the federal government played no role in this market.”
In a press briefing this week, President Barack Obama warned that the Islamic State of Iraq and Syria (ISIS), and the Khorasan, an Al Qaeda splinter group, are severe threats to the American people. “Airstrikes in Syria against the extremist Khorasan group were prompted by planning for an ‘imminent’ terror attack on U.S. soil, the Pentagon said. The militant group is made up of a “network of seasoned Al-Qaeda veterans” preparing to attack “United States and Western interests,” the Defense Department said in a statement.
Moreover, an ISIS fighter has vowed that ISIS—which is responsible for savagely beheading three Western hostages on camera—would avenge the Syrian strikes undertaken this week by the U.S. military.
“The recent intensification of threats to American interests around the world from new terrorist organizations, including ISIS and Khorasan, demonstrate the need for TRIPRA’s extension,” said Dr. Hartwig. “Since its creation in 2002, the federal Terrorism Risk Insurance Act, and its successors, have been critical components of the U.S.’s national economic security infrastructure.”
“TRIPRA has cost taxpayers virtually nothing, yet the law continues to provide tangible benefits to the U.S. economy in the form of terrorism insurance market stability, affordability and availability,” he explained. “The availability and pricing of terrorism insurance is tightening given the uncertainty over TRIPRA’s reauthorization, and because of the unique nature of terrorism risk.”
For property/casualty insurers and reinsurers, the impact of the 9/11 terrorist attacks was substantial, producing insured losses of about $32.5 billion, or $42.9 billion in 2013 dollars—the largest insurance loss in global history at the time. 9/11-related claims were paid out across multiple lines of insurance, including property ($24.7 billion of the total, in 2013 dollars), business interruption, aviation, workers compensation, life and liability.
With TRIPRA scheduled to expire at the end of 2014, both houses of Congress have been discussing legislation that would set out the federal government’s involvement in funding potential terrorism losses. Bills to reauthorize TRIA have been introduced in both the U.S. House of Representative and the U.S. Senate, but with Congress in recess until after the November mid-term elections, the opportunity to reauthorize TRIA before year-end and avoid potentially significant economic disruptions is rapidly narrowing.
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