Congress needs to reauthorize the Terrorism Risk Insurance Act before the end of the year to prevent uncertainty in the market for insurers and their policyholders, according to insurance industry experts.

Created in the aftermath of the Sept. 11, 2001, terrorist attacks, the act provides a government guarantee to insurance companies, protecting them against catastrophic losses incurred from a terrorist attack. The effects of a large-scale attack would be covered under the act if three conditions are met: insured losses exceed $5 million; the event is "certified" as an act of terrorism by the U.S. government; and the overall loss level, currently at $180 million, is met. That level is scheduled to be increased to $200 million next year.

Since being enacted in 2002, the program has been reauthorized three times: in 2005, 2007 and 2015. The latter reauthorization was signed by President Barack Obama on Jan. 12, 2015, 12 days after Congress allowed the program to lapse, causing confusion in the marketplace and throughout the industry over coverage.

Frank Nutter, president of the Reinsurance Association of America, said that even though the current reauthorization runs through Dec. 31, 2020, Congress needs to act as soon as possible.

"The point the industry makes is that contracts, insurance and reinsurance contracts get renewed at the beginning of 2020 for the calendar year," Nutter said in an interview. "They have to take into consideration that the program will or will not be there. We feel it's very important to reauthorize it in 2019 so there's no question about the program being in place for the full year 2020 and beyond."

Moving forward

The first move toward reauthorization was taken Oct. 16 when Rep. Maxine Waters, D-Calif., chairwoman of the House Committee on Financial Services, said she was committed to passing a 10-year extension without any changes to the provisions in the act. Waters made those comments at a press conference prior to her committee's hearing on the program.

John Doyle, president and CEO of Marsh LLC, a subsidiary of Marsh & McLennan Cos. Inc., testified before the committee that many sectors of the economy, including education, media, financial institutions and real estate, depend on the act to be a "backstop against large-scale terror attacks." Without it, he said "many industries would struggle to find sufficient or affordable insurance coverage."

Joe Carter, speaking on behalf of the American Property Casualty Insurance Association, testified that the lapse in 2014 led to confusion about the status of in-force terrorism coverage, adding that it allowed insurers to introduce exclusions in their policies that said terrorism insurance would be in force "only if the program remained in place."

"When the program lapsed, those exclusions took effect and, had a major loss occurred, the consequences for the country could have been ominous," Carter said.

What's ahead

The next stop on the timeline for a new reauthorization is Oct. 29 and 30 when the Financial Services Committee reviews and suggests changes to the bill, which is known as a "markup," before sending it on to the full House. One of those suggestions, according to committee member Rep. Emanuel Cleaver, D-Mo., would be an amendment addressing the threat of cyberterrorism, which is not mentioned in the act.

However, Nat Wienecke, APCIA's senior vice president for federal government relations, said in an interview that a cyberattack on a TRIA-covered line is currently covered, "which is one of the reasons our members have confidence that [Congress] can do a clean reauthorization bill."

Chris Folkman, senior director of product management at Risk Management Solutions, said the program enacted under TRIA has provided stability in the marketplace and affordable coverage. With "adequate capacity in the market," he agrees that a clean reauthorization is the sensible thing to do at this point in the process.

"[TRIA] is doing its job, and recognizing that we are going into an election year, maybe now would not be the time to do major surgery on the bill," Folkman said in an interview.

The Senate has yet to introduce its bill for the reauthorization. The Senate Banking Committee held a hearing June 18 to discuss reauthorization, but no further hearings on the act appear on the committee calendar.