Even with the distance of 18 years, the Sept. 11, 2001, terrorist attacks still have a profound effect on the insurance and risk management sectors.
First and foremost, many people in the industry had friends and colleagues who were trapped in the Twin Towers on 9/11 and did not make it out. The hundreds of insurance industry professionals that died in the attacks remain fixed in many people’s memories and continue to be memorialized by their companies.
While obviously less consequential compared with the human loss, the financial ramifications of 9/11 also are still with us.
The attacks starkly exposed a weakness in insurance for companies exposed to terrorist threats. While the industry — after some court fights — paid more than $30 billion in claims from the attacks, insurers were leery of continuing to offer coverage for a peril that was tough, if not impossible, to underwrite with any degree of certainty. Lack of historical loss data, concentration of exposures and difficulty in spreading the risk make provision of terrorism insurance a conundrum.
As a result, the economic repercussions threatened to multiply as lenders said they would not grant loans on properties without terrorism coverage, among other things.
But in the year after the attacks, the industry worked with lawmakers to draft an innovative solution that provided a backstop to the insurance industry: the Terrorism Risk Insurance Act of 2002, which allowed insurers to dispense with terrorism exclusions and offer affordable coverage to businesses.
At its reauthorizations, the backstop was scaled back in various ways, such as with higher deductibles and changes to the recoupment charge on premiums in the event of an attack. But TRIA remains an effective support mechanism for insurers and commercial policyholders at no cost to the federal government.
After the delayed reauthorization in 2015, which helped highlight what the significant role TRIA plays, the program is again up for renewal at the end of next year.
The industry and interested lawmakers already are working to extend the program and have made solid progress. A bill has been introduced in the U.S. House of Representatives that would keep the existing provisions intact and look at ways to update the coverage. While it is unclear how quickly the legislation would progress in the Senate, the industry is off to a good start.
Any legislation that provides financial benefits to companies — real or potential — is always likely be subject to charges of corporate welfare, but lawmakers should not seek to pare back any more coverage from TRIA. If another major terrorism attack occurs in the United States, the last thing anyone needs to be worrying about is its effect on insurance.
While there are plenty of distractions in Washington, lawmakers should not shift their focus away from a key economic buttress for a vital sector.
