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AAIS Terrorism Insurance Update

AAIS has been responding to questions from its member companies regarding the federal terrorism reinsurance program and related company actions in advance of the program's scheduled expiration on Dec. 31, 2014. This page will be periodically updated to reflect definitive information that arises from deliberations in Congress and elsewhere regarding the possible renewal, change, or expiration of the program.


Jan. 9, 2015 UPDATE: Consult a recent AAIS Advisory notice for AAIS's response to congressional action in January 2015 to renew the Terrorism Risk Insurance Program (TRIP), after the previous Congress allowed the program to expire temporarily.

Dec. 17 UPDATE: The 113th Congress has adjourned without renewing the Terrorism Risk Insurance Program, which will now expire on Dec. 31, 2014. AAIS has endorsements on file in its commercial lines programs to address this scenario (see table below).

Information of immediate use to AAIS commercial lines affiliates is summarized in an AAIS Advisory notice. Much of what was previously posted in the article and table below is now or will become irrelevant as of Jan. 1, 2015.


For nearly a decade, insurers in specified lines (mostly commercial) have been required by federal law to offer coverage for losses due to “certified” acts of terrorism reinsured under the federal Terrorism Risk Insurance Program (TRIP).

The program is scheduled to expire on 12/31/2014, and insurance trade associations are lobbying Congress to extend it well beyond that date.

There appears to be substantial bipartisan support in Congress for renewing the program, but no one knows for certain if Congress will renew it as is or make substantial changes to it.

Current Law

Under the law establishing TRIP, insurers in certain lines are required to offer coverage for losses arising from an event certified by the Secretary of the Treasury, in concurrence with the Secretary of State and U.S. Attorney General, to be an act of terrorism.

Under the current law, coverage under the program is triggered only if losses from an event exceed $100 million in a calendar year.

When TRIP coverage is triggered, participating insurers pay a deductible of 20% of the previous year’s earned premium. Insurers then pay 15% of losses above their deductible, with the federal treasury paying the other 85%.

Coverage under the program is capped at $100 billion a year, and no insurer is required to cover terrorism losses in excess of $100 billion a year.

Questions

In the meantime, AAIS member companies and other property/casualty organizations have been contacting AAIS asking what to do and what to expect as they prepare to issue policies that may extend beyond the scheduled expiration of the program.

The table provided below seeks to answer those questions as much as possible. 

Coverage Scenarios Regarding Terrorism

In lines subject to the federal Terrorism Risk Insurance Program, AAIS maintains a series of endorsements:

  • Coverage endorsements for losses arising from certified acts of terrorism (for use with policies that become effective prior to 1/1/2015, while TRIP, as we now know it, is in effect); 
  • Exclusions for use if insured declines coverage for certified terrorism loss while TRIP is in effect (subject to an exception for ensuing fire loss in states that do not exempt certified terrorism loss from requirements of the Standard Fire Policy);
  • “Conditional” endorsements that exclude terrorism coverage after TRIP expires or is substantially changed (see table; for use with policies originated on or before 12/31/2014 and expiring on or after 1/1/2015);
  • “Post-TRIP” exclusions of coverage for losses terrorism (for use after 12/31/2014 if TRIP is not renewed);
  • “Conditional” and “Post-TRIP” exclusions for  losses from nuclear, biological, and chemical attacks; and 
  • “Conditional” and “Post-TRIP” exclusions with an exception for ensuing fire losses (applicable in Standard Fire Policy states).

* There could be at least two key areas of exception to this general statement in the event TRIP expires.

  • Florida and New York have not approved other terrorism exclusions unrelated to TRIP. Those two states allow insurers to exclude TRIP coverage if the insured declines it, but there is no apparent means for excluding terrorism coverage in those states if TRIP expires. (Georgia was previously included in this group, but has since approved the use of "post-TRIP" exclusions.)
  • Insurers issuing Dwelling Properties policies for rental dwellings are permitted to ‘cap’ coverage for certified terrorism loss at the $100 billion annual aggregate, but there is no apparent means of excluding coverage for loss caused by terrorism under personal lines policies while TRIP is in effect or thereafter.