New Terror Threats Highlight the Importance of TRIA Renewal | Practical Law

New Terror Threats Highlight the Importance of TRIA Renewal | Practical Law

President Obama recently signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), which provides a federal insurance backstop against terrorism risks. Heightened security alerts and recent terror threats toward shopping malls in North America bring to light the importance for property owners to ensure that they have the proper insurance coverage to protect against terrorism.

New Terror Threats Highlight the Importance of TRIA Renewal

Practical Law Legal Update 3-602-0745 (Approx. 3 pages)

New Terror Threats Highlight the Importance of TRIA Renewal

by Practical Law Real Estate
Published on 27 Feb 2015 • USA (National/Federal)
President Obama recently signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), which provides a federal insurance backstop against terrorism risks. Heightened security alerts and recent terror threats toward shopping malls in North America bring to light the importance for property owners to ensure that they have the proper insurance coverage to protect against terrorism.
On January 12, 2015, President Obama signed into law H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), which renews the Terrorism Risk Insurance Act of 2002 (TRIA) for an additional six years (Pub. L. 114-1, 129 Stat. 3 (2015)). TRIPRA provides a federal insurance backstop for owners of skyscrapers, sports stadiums, shopping malls and other large projects that could face terrorism threats. This is especially timely for general counsels and their lenders given the recent terrorism threats against the Mall of America in Minnesota, and other shopping malls nationwide.
The passage of TRIPRA ends an uncertain period for property owners, who had been faced with insufficient coverage and skyrocketing premiums offered by private insurers since TRIA expired at the end of 2014. Under TRIA, the federal government acts as a reinsurer for terrorism losses over a certain amount. The federal government shares losses caused by a major terrorist attack with the insurance industry, and in exchange, insurance companies must offer terrorism coverage to all policyholders.
The passage of TRIPRA should have a blunting effect on any long-term price increases or lack of availability of adequate coverage.
In addition to extending TRIA through December 31, 2020, TRIPRA also enacts several key provisions, including:
  • The current $27.5 billion insurance marketplace aggregate retention amount (which is the total amount of loss that the insurance industry must pay through deductibles and co-payments) will increase by $2 billion each year until it reaches $37.5 billion.
  • The insurance company co-payment will increase from its current 15% by 1% each year until it reaches 20%.
  • Beginning January 1, 2016:
    • the federal share of payments under the Terrorism Insurance Program decreases from its current 85% by 1% each year until reaching 80%; and
    • the losses required to trigger federal coverage increases from its current $100 million by $20 million each year until reaching $200 million.
  • The Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the US Attorney General, must certify an event for it to qualify as an act of terrorism.
  • A National Association of Registered Agents and Brokers (NARAB) is created to supervise and centralize the licensing process for insurance agents and brokers.
Now that TRIA has been reauthorized:
  • General counsel should confirm that their insurance coverage is still effective if their existing terrorism insurance policies include sunset clauses.
  • Counsel for new business ventures should consult their insurance brokers regarding whether terrorism insurance should be included in their policies.