On April 3, 2014, the RIMS External Affairs Committee hosted a webcast entitled “The Sun Sets on TRIA – A Risk Manager’s Nightmare.” This webcast focused on issues facing commercial insurance buyers as TRIA nears its December 31, 2014 expiration date. Participants asked many questions, some of which the panelists were unable to answer due to time constraints.
Answers to those questions can be found below.
1. Does an authorized party such as the US government need to declare an event as a “terrorist attack” in order for the TRIA policy to trigger?
For a TRIA policy to trigger, the following criteria must be met:
a. An individual act of terrorism must result in losses in excess of $5 million within the United States or to U.S. air carriers or sea vessels.
b. The act must then be certified as an “act of terror” by the U.S. Secretary of the Treasury, Secretary of State and Attorney General
2. Are insurers increasing premiums on policies today anticipating a government backstop will no longer exist?
In some cases, yes. Many companies and organizations have seen their workers compensation rates rise, especially in areas with a high concentration of employees. With regard to commercial property & casualty policies, some organizations have been offered stand-alone policies that will extend beyond Dec. 31, 2014, should TRIA be allowed to expire on that date; however, those policies are at much higher rates than current terrorism policies and the premiums will be non-refundable in the event that TRIA is renewed prior to its expiration.
3. What are RIMS thoughts on the formation of terrorism captives and their ability to access the federal backstop? If reauthorized, do you think captives will be addressed?
Guidance issued by the Department of Treasury has affirmed that TRIA applies to captive insurers and risk retention groups, provided that they provide direct coverage only and are domiciled within the United States. Using a captive can be a cost-efficient risk management tool for certain organizations. It is certainly possible that captives could be further addressed or clarified in a TRIA extension; however, there has been no specific language released to this point.
4. Can you talk about the Boston Marathon Bombing and how it was handled from a TRIA perspective?
To date, the Boston Marathon Bombing has not been certified as an act of terror by the three government agencies that must certify such an event. There has also been a lack of communication and disclosure about why the wait has been so long which has led many groups, including RIMS, to push for a streamlining of the certification process. RIMS is advocating for a 90 day certification deadline, with the possibility of one extension, with the authority to certify being placed with only one department and not three separate departments.
5. Are deductibles and triggers likely to increase with renewal of TRIA?
Increased deductibles, increased triggers, and lower government share of losses all seem likely to be included in any final extension agreement. Many members of Congress would like to see the private industry take an increased role in the program, so these changes are likely. There have been no official numbers released to this point, however.
6. How does the TRIA recoupment provision work?
The Secretary of the Treasury is required to establish surcharges on property/casualty insurers to recoup 133% of the outlays paid by the government in the event TRIA is triggered, unless the insurance industry’s aggregate uncompensated loss exceeds $27.5 billion. In that case, the Treasury Secretary has discretion to apply recoupment charges, but is no longer obligated to do so.
7. How are insurance companies audited to confirm that TRIA related premiums are being held for this specific peril?
Except for Incurred But Not Reported (IBNR) calculations, insurers are only allowed to set reserves for actual claims and/or reported incidents. Similar to other catastrophes (wind, earthquakes, etc.), accounting rules do not allow the pooling for future events.
RIMS External Affairs Committee will host a panel discussion at RIMS 2014 Annual Conference & Exhibition titled, “TRIA: IF A TREE FALLS IN THE WOODS…” that will explore the consequences of TRIA’s expiration including its impact on insurance policies from auto to workers’ compensation. The panel is scheduled for Wednesday, April 30th 11:30 a.m. - 12:30 p.m. It will feature Janice Ochenkowski, Managing Director, Jones Lang LaSalle Incorporated and Emil Metropoulos, Senior Vice President, Guy Carpenter & Co.