NEW YORK–The Terrorism Risk Insurance Act isn't set to expire until the end of 2014, but that doesn't mean it won't be an issue in 2013, says Lloyd's director for North America.
Given the fiscal deficit, the insurance industry has a lot of convincing to do. And it needs to start now, says Sean McGovern, Lloyd's director responsible for North America.
Some lawmakers in Washington may think we can do without TRIA because there hasn't been a su
ccessful attack on the U.S., he says.
"The risk [of terrorism] has not gone away," says McGovern from Lloyd's New York office. "Together with our clients, we need to persuade Congress that the country still needs TRIA."
ALSO READ: TRIA Renewal: No Guarantee
Simply stated, terrorism remains an extremely tough risk to underwrite. Most of the features of insurance are not there. Terrorism risk is very difficult to model and price and it has a very high concentration of loss potential. A sustainable private marketplace of the necessary size does not exist.
Educating the new Congress after the 2012 election needs to start this year in an attempt to avoid another last-minute reauthorization of the act, which in November 2002 created a backstop to provide coverage to insurance companies following a declared terrorism event.
"I don't think there is any real alternative," McGovern says of the backstop.
The industry additionally needs to ensure the solution doesn't become less valuable to insureds and insurers, since with every reauthorization, limits and deductibles have gone up, McGovern adds.
Many insurance executives testified about TRIA's importance before a House subcommittee on Sept.11, 2012. More hearings are expected later this year.
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