Terrorism Insurance Update

12/29/2014

The Background

On Tuesday, December 16, 2014 the Senate failed to reauthorize the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which is now set to expire on December 31, 2014. The House of Representatives previously approved legislation amending TRIPRA through 2020, however the failure to reauthorize the program has forced many and their policyholders to consider alternative programs for terrorism risk.

Solutions

Many Property and Casualty Insurance Carriers’ coverage automatically ceases as of December 31, 2014. However, some Carriers have provided buyers with policies that contained special provisions that would continue to provide the coverage in the event that TRIPRA expired and that continues through the end of the policy period. While it is unclear how the industry will respond during the coming year, certain Carriers have stated that they will continue to provide coverage, even without a formal provision in effect. Other responses include: sublimiting the amount of terrorism coverage offered, increased exclusions for certain types of terrorism risk, and/or higher prices with the new demand/additional reinsurance costs necessary to continue to offer cover and potential standalone terrorism cover. There will also be some carriers who will be unable to offer terrorism insurance at all given treaty restrictions or accumulation issues.

Other issues with the loss of TRIPRA

Rating Changes and Requirements

  • A.M. Best and S&P have not indicated any change in the financial ratings happening.
  • Depending on the state, there are certain requirements that Carriers will have to understand and comply with.
  • Worker’s compensation is the one facet that companies needs to assume coverage for. It could be more difficult for employers to obtain worker’s compensation for their employees now, especially in the high-risk cities.
  • It is unclear how banks will respond to new Terrorism exclusions and limitations.

The future of TRIPRA

Congress is back in session on January 6, 2015 and there is a good chance that the House and Senate pass reauthorization legislation. The new bill would have some changes such as trigger increases (right now at $200M), co-insurance changes (currently at 85%), and Dodd-Frank fixes.

WGA is continuing to monitor this situation and is here to answer your questions regarding the reauthorization of TRIPRA. Please call your WGA client executive if you want to review options under your coverage.

Click here for a PDF of the whitepaper.