Local Terrorism Coverage Beats Global

Although there have been no attacks or payouts in the 12 years since its original passage, the Terrorism Risk Insurance Act in the US is set for renewal again, despite the fact that it was only intended as a temporary measure to protect the commercial insurance market and its customers following the attack on the Twin Towers. By requiring insurers to offer terrorism coverage in exchange for the government agreeing to pay 85% of any losses exceeding $100 million after a single terrorist attack, TRIA was thought to be the best option to ensure that reinsurers continued to provide terrorism coverage.

Whether renewal will follow the minor changes suggested in the Senate bill that passed by a vote of 93 to 4 on July 17 or will be pared back when it comes before the House, insurers and owners of buildings and stadiums in high-profile locations in the US can breath a sigh of relief.

The bill won’t be brought before the House until September, at the earliest, owing to the stalling tactics of some Republicans, including Financial Services Committee chairman, Jeb Hensarling, who believes it will take months to resolve the differences between his House bill and the Senate bill. “As this process goes forward over the next several months,” insists Hensarling, “I will be using that time to discuss with all members how to continue the program and also make reforms that improve our stewardship of Americans’ hard-earned tax dollars.”

In the immediate aftermath of 9/11 it wasn’t just the US that created a national terrorism insurance scheme, several European nations did too, although both the UK and Spain already had them in place owing to previous domestic terror concerns. France, Israel and Spain operate compulsory pools, while Australia, Austria, Bahrain, Belgium, Denmark, Finland, Germany, Hong Kong, India, Indonesia, Namibia, the Netherlands, Russia, South Africa, Sri Lanka, Switzerland, Taiwan, the UK and the US all have optional pools.

In the main, these pools provide reinsurance, which is either capped, as in the US, or unlimited, as in the UK. Those in Austria and Finland, meanwhile, receive no government financial support and are limited to the terms of a particular policy. Where the US differs, however, is that unlike other governments that act as reinsurers, it does not receive a share of the pool’s income, which is one reason the renewal is a contentious issue.

Definitions of terrorism and exclusions also vary, as do premium rates in different cities; and this is before addressing higher terrorism threats to certain types of businesses and locations.

These diverse approaches and considerations are a minefield for the risk managers of large multinational companies. The days of taking a policy out in London to cover multiple global locations is no longer possible—or wise. It’s now necessary to employ a more sophisticated approach and to use local expertise to ensure that the coverage is sufficient and in compliance.