Outlook for Renewal of Terrorism Backstop Uncertain

In the wake of the Boston bombings, risk managers consider their 2014 insurance renewals and whether TRIA will be extended.

Last month’s Boston bombings drew attention to the expiration of the federal backstop for terrorism insurance that occurs at the end of next year. While the end of 2014 may seem distant, companies will have to start thinking about their alternatives if Congress doesn’t reauthorize the backstop when they start shopping for insurance policies that take effect at the start of next year.

“There is a misleading focus on the Dec. 31, 2014 date,” said Robert Hartwig, president and economist of the Insurance Information Institute. “In September or so, companies begin to negotiate their coming-year insurance packages and insurers negotiate their reinsurance. They will all reflect the possibility that anything renewing in 2014 could face the possibility of TRIA no longer being in existence.”

Although a couple of measures have already been introduced in Congress to extend TRIA, opposition is already building. Last week, the Consumer Federation of America issued a statement arguing that the insurance industry’s current $586.9 billion in surplus means that it could easily handle the cost of a terrorist event, noting that 9/11 resulted in insured losses of $24 billion in 2013 dollars. The group suggested that insurers have become “nervous nellies.”

The insurance industry argues that terrorism risk is too random to be modeled and insured.

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