It’s rare for Congress to pass a bill that does exactly what lawmakers intended it to do, and at no cost to the federal government. Yet that is precisely what the Terrorism Risk Insurance Act (TRIA) has done — it has ensured that businesses have access to terrorism risk insurance for more than a decade, and has not cost taxpayers a dime.
But the Terrorism Risk Insurance Act is set to expire at the end of this year, and a small faction of conservatives in the House has refused to allow a vote on a reauthorization bill that cleared the Senate by an overwhelming 93-4 vote.
The Senate bill raises the share of losses that insurers have to pay in the event of a terrorist attack, increasing the industry’s “co-share” under TRIA from 15 percent to 20 percent. It also increases the amount of money that the Treasury secretary is required to recoup from the insurance industry if TRIA is triggered. These two changes would gradually shift more of the burden for terrorism-related losses onto the insurance industry, while also ensuring that terrorism insurance is widely available and affordable — the original goal of TRIA.
It is true that TRIA can’t prevent a terrorist attack, but it can greatly lessen the financial impact. After 9/11, the market was so bad that you couldn’t even insure a hot dog stand. Insurance was effectively unavailable to businesses across the country — insurers simply refused to offer coverage for terrorist attacks. Because lenders typically require that commercial borrowers obtain “all-risk” insurance policies, this lack of terrorism insurance brought construction to a screeching halt.
When Congress passed TRIA, prices for terrorism insurance quickly declined to an affordable level, and now roughly 60 percent of commercial policyholders choose to purchase terrorism insurance coverage.
Taxpayer exposure is also reduced with TRIA. RAND Corp. found that eliminating the program could increase federal spending by as much as $7 billion in the event of a major attack. Even in a worst-case scenario, the total exposure to taxpayers is predictable and limited, and any federal funds spent would ultimately be recouped.
An alternative bill proposed by a small conservative faction in the House would disrupt this success. These lawmakers are calling for an increase in the trigger for government loss-sharing under TRIA of a whopping 500 percent — an increase that small- and medium-sized insurers would simply not be able to afford.
In New York, increasing the program trigger in such a dramatic way would put 251 of the state’s 271 TRIA insurers at risk of downgrades by rating agencies, and many would be forced to exit the terrorism insurance market entirely.
There is not a forecasting model or reinsurance plan in the world that would enable the market to bear these changes. Such a radical rework of TRIA would foster less competition, less overall insurance capacity, less innovation and higher premiums.
With only four weeks until TRIA expires, it’s time for Congress to act. The opponents of TRIA have not demonstrated meaningful support for their proposal. It’s time for the House to take the bipartisan approach that cleared the Senate and reauthorize TRIA at once.
Maloney has represented congressional districts in New York City since 1993. She sits on the Financial Services, and the Oversight and Government Reform committees.