Experts Weigh Boston Bombings’ Impact on Government-Backed Terrorism Insurance

The April 15 Boston bombings could have an impact on the efforts to renew the federal government’s terrorism insurance backstop.

Some experts say the Boston Marathon tragedy could help the cause of supporters of the government program by reminding lawmakers of the ever-present dangers of terrorism and that the federal backstop remains essential.

However, others point out that the current expiration date for the federal backstop is still more than a year and a half away and any serious discussions may not get underway in Congress until next year — so it’s too early to tell what might happen then.

Some supporters of the federal reinsurance program are worried that because the bombings so far do not appear to be a significant insurance event and the insurance industry would likely be able to handle claims without any government involvement, lawmakers might even get an impression that the private sector can now handle such risks on its own.

The Terrorism Risk Insurance Act (TRIA), first established in 2002, was extended in 2005 and reauthorized for seven additional years in 2007 as Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). It’s currently set to expire on Dec. 31, 2014. In February, a bill was introduced in the U.S. House of Representatives to extend TRIPRA for five years beyond its current expiration date at the end of 2014.

“There is no question that the marathon bombing is going to factor into the debate related to the extension of the terrorism risk insurance program,” said Dr. Robert Hartwig, president and economist with the Insurance Information Institute, who was one of the spectators at the marathon. Hartwig, along with his wife, had gone to see their son who had participated in the race. All of the Hartwigs escaped injury.

In September 2012, Hartwig testified at the first Congressional hearing on the TRIPRA renewal issue. “What I said was that terrorism is no more insurable today than it was in September of 2001 and that these events are fundamentally uninsurable for a variety of reasons,” he said. “And so there is a strong economic rationale, an actuarial rationale, for these losses to be shared with the federal government.”

Federal backstop dollars would come into play only if and when there are insured losses of at least $100 million occurring within the span of a year of the event, in addition to the event meeting the definition of a terrorist attack.

Under TRIA, an event cannot be considered as a terrorist act unless the U.S. Treasury secretary, the secretary of state and U.S. attorney general all certify it as an act of terrorism, which has not yet happened in the Boston bombings case, and can only happen if there is at least $5 million of aggregate property and casualty losses.

Brian Green, an insurance attorney at law firm Edwards Wildman Palmer, is watching to see what effect the bombings might have on the insurance industry and Congress.

“We have already seen one bill proposing an extension of the program but it does not appear that a renewal is on the immediate horizon,” Green said. “The attack, however, clearly reminded people that the threat of terrorism is real and that New York is not the only target.”

Jack Dearie, also an attorney from Edwards Wildman Palmer, said the tragedy may very well serve as a catalyst to bring the threat of terrorism back to the forefront of discussions. “This might serve as a reminder that there needs to be a conversation about the future of TRIA,” he said.

Attorney Lawrence Mirel, who previously served as Commissioner of Insurance, Securities and Banking for the District of Columbia, added, “Right now, it has reminded everyone, including legislators in Congress, that there is still a real risk.”

“Now, does that translate into a certain renewal of TRIA?” asked Mirel, answering his own question, “Not necessarily.” Mirel, who is now a partner at insurance law firm Nelson Levine de Luca & Hamilton, said the fact that the private market can handle this on its own might get some Congressional members to think, “What do we need to get involved for? The private market can now take care of it.”

“On the other hand, the insurance industry would argue that, ‘We can take care of it because it wasn’t very large, but if it were much larger, we would need this backstop.’ So I don’t think it will have any decisive impact on whether TRIA should be renewed by the end of next year,” Mirel said.

“And whether it will have any long lasting reminder effect is not even clear. A year and a half is a long time.”

Mirel said that the Boston tragedy is not expected to increase terrorism coverage prices dramatically, though it may encourage more businesses that hadn’t purchased terrorism risk coverage before to consider buying it.

Meanwhile, the National Association of Mutual Insurance Companies (NAMIC), which had been calling for an extension to the TRIA program before the tragic events in Boston, said that it would continue to press lawmakers to act as swiftly as possible.

In times such as these the focus of the government’s efforts should be on helping the victims, said Jimi Grande, senior vice president of federal and political affairs at NAMIC.

NAMIC said the association would continue to make the same arguments it has made including that TRIA is a vital part of the country’s economic defense, that terrorism is a unique risk whose very nature makes it impossible for insurers to cover against major events, and that the information needed to even begin to price coverage is rightly kept classified as a matter of national security.