Heller Welcomes Committee Passage of Terrorism Risk Insurance Act

Press Release

Today, the Senate Committee on Banking, Housing, & Urban Affairs passed legislation to re-authorize and extend the Terrorism Risk Insurance Act (TRIA) program, which is set to expire at the end of 2014. U.S. Senator Dean Heller (R-NV) introduced the legislation, S. 2244, in April, along with U.S. Senators Charles E. Schumer (D-NY), Mark Kirk (R-IL) and Jack Reed (D-RI).

"Passing this bill out of Committee today is a step forward towards providing the certainty that businesses are looking for in the current economic climate. By extending the Terrorism Risk Insurance Act, Congress can help ease the concerns of businesses in the hospitality and tourism industries throughout Nevada, especially Las Vegas and Reno," said Senator Dean Heller. "I would like to thank Senators Schumer and Kirk and all of my colleagues who supported this bill for their input throughout this process, and I hope Congress has a chance to vote on this legislation on the Senate floor as soon as possible."

Created in 2002, the TRIA program is a critical priority for high-risk cities post-9/11. The program provides a federal backstop for insurance coverage against losses from devastating terrorist attacks. This insurance is crucial to spurring new development and protecting existing real estate in high-risk urban areas. TRIA has been reauthorized in 2005 and in 2007.

The Las Vegas Metro Chamber of Commerce, The Chamber of Sparks, Reno and Northern Nevada, the Nevada Hotel and Lodging Association and the American Gaming Association have all issued letters of support for extending TRIA.

Background:

Senators Heller, Schumer, Kirk and Reed introduced the reauthorization legislation in April. The bill was cosponsored by Senators Chris Murphy (D-CT), Mike Johanns (R-NE), Mark Warner (D-VA), Robert Menendez (D-NJ) and Roy Blunt (R-MO).

Key Details of Agreement:

The program, which was set to expire at the end of this year, will be extended for an additional 7 years. It will include two changes to the current program that will be phased in over 5 years:

1) Co-pay: In the event of a terrorist attack, insurance companies would first be obligated to pay a portion of their premiums (20% of the prior year's direct earned premium for covered commercial lines) as a deductible. Following that deductible payment, however, the program currently requires that the federal government cover 85% of each company's losses until the amount of losses totals $100 billion. Each company is obligated to pay the other 15% of losses. In other words, after an insurer's losses exceed its deductible, it faces a 15% co-pay on all additional terrorism losses in conjunction with the federal government's 85% recoupable co-pay.

The proposed legislation would increase an insurers' co-pay from 15 to 20%, with the government still covering 80% of each company's additional losses. As stated, this increase would be phased in incrementally over five years.

2) Recoupment: When aggregate insured losses are less than $27.5 billion, the TRIA program currently imposes mandatory policy surcharges that require recoupment of federal payments made under the program. In other words, recoupment by the federal government is mandatory if the insurance industry's aggregate uncompensated loss is less than $27.5 billion. Additionally, under the current program, when aggregate insurer deductibles and co-payments exceed $27.5 billion, TRIA provides the Secretary of the Treasury the authority to recoup federal payments above that amount based on pre-established factors and conditions.

The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry's aggregate uncompensated losses are below $37.5 billion the government will be required to recoup its TRIA payments outlaid to insurers.

After 9/11, it quickly became clear that private insurance companies would not provide coverage for losses related to terrorist attacks because attacks were deemed too unpredictable, and the potential losses too large. The TRIA program, however, has enabled private insurance companies to provide policies in high-risk areas and to high-risk developments such as stadiums, malls, ports and airports.

The program was made necessary after the September 11th attacks when private insurers became reluctant to insure real estate owners for fear of massive losses from terrorist attacks. TRIA has reversed that negative trend by making the federal government the insurer of last resort for catastrophic losses with strong taxpayer protections that provide for recoupment of support paid out by the government.

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