Congress mulls reworking of Terrorism Risk Insurance Program

Some members of Congress recently made it known that they are serious about a radical reworking of the 12-year-old Terrorism Risk Insurance Program (TRIA).

A draft of the Risk Insurance Modernization Act by House Republicans outlines a potential future for the TRIA that would make it essentially a volunteer program devoted almost exclusively to covering terrorist events, including nuclear, biological, chemical and radiological attacks. The program would also carry a cost for participating insurers, RStreet.org reports.

The $100 billion federal reinsurance backstop, created in the wake of the Sept. 11, 2001, terrorist attack, has already seen changes, including its 2005 reauthorization that called for it to be pared down in size and scope.

Originally, the TRIA tasked the insurance industry with retaining only $10 billion of terrorism-related risks while creating an obligation to pay back up to that amount of any federal outlays for terrorist events. Since then, the aggregate retention has risen steadily, from $12.5 billion in 2004 to $27.5 billion in 2007, while the individual deductibles of insurers has also risen from the original seven percent of earned premium in 2003 to 20 percent in 2007, according to RStreet.org.

Parts of the current draft House bill seeking to make changes to the TRIA will shift the aggregate industry retention from the current flat figure of $27.5 billion to a floating benchmark calculated by adding up all of the deductibles of individual insurers. The draft also would require the government to recoup 150 percent of any expended funds, up from the current 133 percent.

The bill also introduces several new concepts to the programs, including creating distinctly different terms for NBCR and non-NBCR events, providing a limited opt-out for smaller insurers, and requiring insurers to being building pre-disaster reserves for terrorist events, RStreet.org reports.

Under the terms of the draft bill, any insurers participating in the TRIA would be required to establish a "capital reserve fund" equal to 50 percent of the terrorism-related premium the company collects. The funds would be held in a fiduciary capacity on behalf of the Treasury, thought it would be allowed to be invested in a limited number of approved vehicles or be used to purchase reinsurance.