The removal of the Terrorism Risk Insurance Act, set to expire Dec. 31, could return the insurance market to the uncertainty of the aftermath of Sept. 11, 2001, according to Florida Insurance Commissioner Kevin McCarty.
The Florida Office of Insurance Regulation issued a statement saying terrorist acts in London in the last two weeks reiterate the need for a federal terrorism backstop. It said the Florida Office of Insurance Regulation joins the National Association of Insurance Commissioners and the National Council of Insurance Legislators in supporting reenactment of TRIA.
“Due to the severity and unpredictability of man-made catastrophes, the United States needs to do something similar to what has been done in the European countries to address these threats,” McCarty said.
Insurance industry experts predict the United Kingdom’s (UK) financial impact will be limited in large part to the 12-year-old state-backed terrorism insurance program. In 1993, the U.K. government developed a state sponsored compensation program covering terrorism related damages after a series of Irish Republican Army attacks.
TRIA was enacted in response to the Sept. 11, 2001, attacks when many businesses were no longer able to purchase insurance protecting against property losses from terrorist attacks. The three-year program was established to share the burden between private insurance and the Federal Government for insured losses to allow the private market to stabilize and to ensure the availability and affordability of insurance for terrorist risks.
If TRIA expires at the end of the year, industry experts fear that losses exceeding $25 million, a limit which existed before TRIA was enacted, would not be insurable and would cause uncertainty in the marketplace.
Insuring terrorism risks presents new challenges to the property and casualty insurance industry, whose risk models are generally built on frequent and predictable losses and were originally developed to gauge financial losses from natural catastrophes. Prediction of man-made catastrophes (terrorism) is in its infancy.
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