Today we remember 9/11. The attack had many effects on the insurance industry, from lives lost to the Terrorism Risk Insurance Act.
On a sunny morning in September 18 years ago, the nation reeled from a massive terrorist attack that claimed lives in New York City, the Pentagon and a field in Pennsylvania. Nearly 3,000 people who were just going about their daily events were killed in the brutal attacks.
The day took a very heavy toll on the insurance industry. Among the lives claimed were 295 employees of Marsh & McLennan and 176 employees at Aon Corporation. Dave Lenckus of Business Insurance offers recollections from insurance executives who were connected with or escaped from the WTC in his article Terror of September 11 lives in memory.
The terrorist attack had other effects on insurance that continue to this day. The Terrorism Risk Insurance Act of 2002 (TRIA) was a direct offshoot of the events of 9/11. Insurance Business America offers a history of TRIA over years, including this explanation of its inception:
“Before 9/11, most insurance companies in the US were covering terrorism as part of their commercial products. It was not necessarily a named and priced peril; rather most companies did not explicitly exclude terrorism from their policies. After 9/11, the landscape changed as insurance organizations grew increasingly concerned about international terrorism risk, and many primary insurers filed requests with their state insurance departments to start excluding terrorism from their commercial policies. Just six months after 9/11, 45 out of 50 US states approved these exclusions in standard commercial insurance policies. This then led to the enactment of the 2002 TRIA and the TRIP.”
See the Insurance Information Institute for more: Background on: Terrorism risk and insurance:
Terrorism, by design, is unpredictable, hugely destructive, and to date uninsurable through private market methods alone.
Few events demonstrate this better than the 9/11 attacks, in which terrorists hijacked commercial airliners and flew them into the World Trade Center towers and the Pentagon. The attacks remain the deadliest and most expensive terrorist incidents in U.S. history, with insurance losses totaling about $47.0 billion in 2019 dollars, according to I.I.I. estimates. U.S. and international insurers were able to pay virtually all the claims from the 9/11 attacks and their aftermath. But insurers also made it clear that they could not, on their own, cover future losses caused intentionally by people acting strategically to attack select targets intentionally.
Since its first passage, it has been revised. Undergone name changes and been renewed several times. Historically, these renewals are often nail-biters that occur at the eleventh-hour or later, triggering uncertainty among large employers and brokers that ripple through the market. The last renewal was no exception – the deadline passed at the end of 2014 after a year-long struggle, and finally passed in January of 2015 – the bill that that is still in effect today through the end of 2020. See: Senate Passes TRIA; Bill Goes to President Obama’s Desk
“In addition to reauthorizing the TRIA program for six years, the bill raises the trigger amount needed in total losses before the TRIA program kicks in from the current $100 million to $200 million, over five years, beginning in calendar year 2016. Also over five years, starting Jan. 1, 2016, the mandatory recoupment rises from $27.5 billion to $37.5 billion, increasing by $2 billion each year. For all events, the bill raises the private industry recoupment total from the current 133 percent of covered losses to 140 percent of covered losses.”
Today, on this anniversary of 9/11, we again wait for politicians to act on renewal. Many industry voices are speaking to the vital nature of the bill and the importance of its renewal. See the National Association of Insurance Commissioners for detail on the current law and the efforts being taken by the industry to lobby for renewal: NAIC: Terrorism Risk Insurance Act ( TRIA )
Here are other perspectives speaking to the importance of renewal, along with discussions about the impact of the legislation and how some insureds and their brokers are looking for alternatives for security.
Business Insurance: Timetable for TRIA extension may slip to 2020
“TRIA provides a framework for the orderly transfer of that risk to the private market with a backstop for the most catastrophic of events,” Mr. Davis said. “It has worked and fortunately has not been tested.”
“It’s sustainable, it’s affordable, it’s an option many of our clients are exercising,” Mr. Davis said.
One of TRIA’s main purposes is to make sure terrorism coverage is available in the marketplace, according to the NAIC.
“Anything that provides contract certainty for buyers and insurers over the long term makes far more sense than the incremental extensions” passed thus far, Mr. Davis said. “Our focus is on ensuring there is no gap in the legislation as briefly occurred with the 2015 extension.”
Market conditions remain stable at present with TRIA in the background, experts say.
There has been “no change in market conditions yet,” Mr. Nageer said.
Business Insurance: Failure to extend terrorism backstop could rattle comp market
A failure to extend the federal terrorism backstop beyond 2020 could lead to a “domino effect” of increased pricing across all lines of insurance, but could be particularly disruptive to the workers compensation sector, a Marsh LLC official told members of Congress.
… “While there have been no significant insured losses in recent years and the industry is well capitalized, the access to terrorism insurance is still dependent on insurers’ preference, appetite and aggregate concerns,” Mr. Nageer said. “There’s a strong possibility that if the federal backstop ceases to exist, we could see a domino effect of increased pricing across multiple insurance lines, not just terrorism, with the likely result of major market disruption.”
Insurance Information Institute: A World Without TRIA: Incalculable Risk
The Terrorism Risk Insurance Act (TRIA) and its successors have been an important support to efforts to supply terrorism insurance through the private market. Since the program was enacted, the percentage of companies purchasing terrorism insurance has risen to 80 percent, and the price of coverage has fallen more than 80 percent.
The program expires at the end of 2020, but insurers are already grappling with the possibility of a world without TRIA. This white paper compares the current insurance climate with the two periods post 9/11 when there was no federal backstop and concludes that while the private market for terrorism insurance has grown, there are doubts whether the industry can write terrorism insurance without the backstop.
Brokers Aon Plc and Marsh, a Marsh & McLennan Companies Inc. unit, said they have begun telling customers about alternatives to the government-backed program, such as a contingency policy that activates if it does not renew on time.
Many clients in high-risk areas, such as New York, are already looking into buying two-year standalone policies, which will insure them through 2021, regardless of what happens with the government program, said Christof Bentele, global head of crisis management, at Allianz Global Corporate & Specialty, a unit of Allianz SE.
As commercial customers buy up standalone coverage, those who may also need this type of coverage at the last minute – if the government-backed program lapses – may not be able to obtain it or may have to pay extra, insurers said.