Terrorism Risk Insurance Legislation in the 113th Congress: Issue Summary and Side-by-Side Analysis
Released: 2014-12-31T00:00:00

Summary:
Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses was normally included in commercial insurance policies without additional cost to the policyholders. Following the attacks, this ceased to be the case as insurers and reinsurers pulled back from offering terrorism coverage. It was feared that a lack of insurance against terrorism loss would have a wider economic impact, particularly because insurance coverage can be a significant factor in lending decisions.
Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297). TRIA created a temporary program, expiring at the end of 2005, to calm the insurance markets through a government reinsurance backstop sharing in terrorism losses. The intent was that this would give the industry time to gather the data and create the structures and capacity necessary for private insurance to cover terrorism risk. TRIA did not require premiums to be paid for the government coverage. Instead, TRIA required private insurers to offer commercial insurance for terrorism risk with the government then recouping some or all federal payments under the act in the years following government coverage of insurer losses.
Under TRIA, terrorism insurance became widely available and largely affordable, and the insurance industry greatly expanded its financial capacity. There has been, however, little apparent success on developing a longer-term private solution, and fears have persisted about wider economic consequences if insurance were not available. Congress passed two extensions to the program, in 2005 (P.L. 109-144) and 2007 (P.L. 110-160). The 2005 extension was primarily focused on reducing the government's upfront financial exposure under the act, whereas the 2007 extension left most of the upfront aspect of the TRIA program unchanged, while accelerating the post-event recoupment provisions. The 2007 legislation also included the only expansion of the TRIA program since initial enactment; it extended the program to cover any acts of terrorism, as opposed to only foreign acts of terrorism.
The current TRIA program expires at the end of 2014. Although insurance industry capacity has increased since 2002, terrorism is still seen by many as essentially uninsurable. Without TRIA, the insurance industry has indicated that terrorism insurance will again become unavailable or unaffordable and fears are again being expressed that lack of terrorism insurance may slow down other sectors of the economy. Several bills (H.R. 508, H.R. 1945, H.R. 2146, S. 2244, and H.R. 4871) were introduced to extend TRIA and change different aspects of the program. The House and the Senate adjourned on December 16, 2014, without passing legislation to extend TRIA.
This report briefly outlines the issues involved with terrorism insurance, summarizes extension legislation in the 113th Congress, and includes a side-by-side of TRIA law and bills that were passed by the Senate (S. 2244), reported by the House Committee on Financial Services (H.R. 4871), and passed by the House (S. 2244 with a substitute amendment). For more a more in-depth treatment of the issues surrounding TRIA, please see CRS Report R42716, Terrorism Risk Insurance: Issue Analysis and Overview of Current Program, by [author name scrubbed].

subsections: section_title: Background
paragraphs: Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses was normally included in general insurance policies without additional cost to the policyholders. Following the attacks, both primary insurers and reinsurers pulled back from offering terrorism coverage. Because insurance is required for a variety of economic transactions, particularly borrowing for commercial development, it was feared that a lack of insurance against terrorism loss would have a wider economic impact.
Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA). TRIA created a temporary three-year Terrorism Insurance Program to calm the insurance markets through a government reinsurance backstop sharing in terrorism losses. The idea was to give the private industry time to gather the data and create the structures and capacity necessary for private insurance to cover terrorism risk. TRIA requires insurers to offer terrorism coverage, but does not require commercial policyholders to purchase the coverage. This program was extended in 2005 and 2007. In 2005, the extension legislation focused on reducing the government's exposure from TRIA by increasing the minimum covered event size, increasing the insurer deductible, reducing the government share of losses, and increasing the post-event mandatory recoupment. In 2007, the primary change was to accelerate the after-the-fact recoupment. While the prospective government share of losses has been reduced over time, the 2007 reauthorization also expanded the program to cover losses from acts of domestic terrorism. The TRIA program expired at the end of 2014, as provided for in the 2007 extension.
The initial thresholds of the current program are as follows: 
1. A terrorist act must cause $5 million in insured losses to be certified for TRIA coverage. 2. The aggregate insured losses from a certified act of terrorism must be $100 million in a year for the government coverage to begin. 3. An individual insurer must meet a deductible of 20% of its annual premiums for the government coverage to begin. 
Once these thresholds are passed, the government covers 85% of insured losses due to terrorism with the private insurers retaining 15% of the losses. No premiums are charged by the government for this coverage. Instead, if the insured losses are under $27.5 billion, the Secretary of the Treasury is required to recoup 133% of government outlays through a surcharge on commercial property/casualty insurance policies. As insured losses rise above $27.5 billion, the Secretary is required to recoup a reduced amount of the outlays. At some high insured loss level, which will depend on the exact distribution of losses, the Secretary would no longer be required to recoup outlays, but would retain the discretionary authority to do so. Under current law, all mandatory recoupment must be completed by the end of FY2017.
Since TRIA's passage, private industry's willingness and ability to cover terrorism risk have increased. According to industry surveys, prices for terrorism coverage have generally trended downward, and approximately 60% of commercial policyholders have purchased coverage over the past few years. This relative market calm has been under the umbrella of TRIA coverage, and it is unclear how the insurance market may react to the expiration of the federal program.
section_title: Legislation in the 113th Congress
subsections: section_title: The Terrorism Risk Insurance Act of 2002 Reauthorization Act of 2013 (H.R. 508)
paragraphs: Representative Michael Grimm along with nine cosponsors introduced H.R. 508 on February 5, 2013. The bill is a reauthorization of the existing TRIA program that would extend the program five years, until the end of 2019. It would also extend the deadline for mandatory recoupment seven years, until September 30, 2024. The bill has been referred to the House Committee on Financial Services.
section_title: The Fostering Resilience to Terrorism Act of 2013 (H.R. 1945)
paragraphs: Representative Bennie Thompson along with one cosponsor introduced H.R. 1945 on May 9, 2013. The bill would extend the expiration date of the program 10 years, until the end of 2024, and would extend the deadline for mandatory recoupment seven years, until September 30, 2024. It would also add the Secretary of Homeland Security as the lead authority responsible for certifying an act of terrorism and require the Secretary to provide information and reports on terrorism risks and best practices to foster resilience in the face of terrorism. The Secretary of the Treasury would remain in the certification process but as a concurring party, not the lead authority; the program in general would remain under the authority of the Treasury. H.R. 1945 has been referred to the House Committee on Financial Services and the House Committee on Homeland Security.
section_title: Terrorism Risk Insurance Program Reauthorization Act of 2013 (H.R. 2146)
paragraphs: Representative Michael Capuano along with 20 cosponsors introduced H.R. 2146 on May 23, 2013. The bill is a reauthorization of the existing TRIA program that would extend the program 10 years, until the end of 2024, as well as extend the deadline for mandatory recoupment by 10 years, until September 30, 2027. In addition, the President's Working Group on Financial Markets is to continue filing reports on market conditions for terrorism risk insurance, with reports required in 2017, 2020, and 2023. The bill has been referred to the House Committee on Financial Services.
section_title: Terrorism Risk Insurance Program Reauthorization Act of 2014(S. 2244)
paragraphs: Senator Charles Schumer along with eight cosponsors introduced S. 2244 on April 10, 2014. The bill would extend the current TRIA program seven years, until December 31, 2021, while also decreasing the federal loss sharing amount and increasing the amount to be retained by the industry and recouped by the government. Specifically, S. 2244 as introduced would
decrease the federal loss sharing gradually from 85% to 80%, and increase the insurance marketplace aggregate retention amount by $2 billion per year until it reaches $37.5 billion from the current $27.5 billion, and extend the various dates for mandatory recoupment by seven years. 
Under these extended dates, if an act of terrorism occurs prior to 2018, all mandatory recoupment premiums must be collected by September 30, 2019. If an act occurs in 2018, 35% of the mandatory recoupment premiums would be collected by September 30, 2019, with the rest by September 30, 2024. If the terrorist act occurs after 2018, all of the mandatory recoupment premiums would be collected by September 30, 2024. 
subsections: section_title: Committee Consideration
paragraphs: The Senate Committee on Banking, Housing, and Urban Affairs marked up S. 2244 on June 3, 2014. A number of amendments were adopted en bloc, including 
a change in the mandatory recoupment provisions to require that 135.5% of the federal payments be recouped; a requirement for the Treasury to study the certification process and issue final rules governing the process, including a timeline; and a Government Accountability Office (GAO) study of the possible effects of instituting premiums to be paid by the insurer to the government for the coverage provided under TRIA. 
One amendment was rejected on a recorded vote in committee. Senator Tom Coburn offered an amendment that would have changed the timing of the mandatory recoupment, giving more time for the recoupment in the case of larger attacks. This amendment failed on a vote of 7-15. The bill as amended was ordered reported favorably on a vote of 22-0. The written report ( S.Rept. 113-99 ) was filed on June 26, 2014.
section_title: Senate Floor Consideration
paragraphs: S. 2244 was considered by the full Senate by unanimous consent on July 17, 2014, with three amendments adopted.
S.Amdt. 3552 was offered by Senator Jon Testor. This amendment added a second title to the bill relating to the licensing of insurance agents and brokers. This Title II is similar to both H.R. 1155 and Title II of S. 1926 as the two bills passed the House and the Senate respectively. S.Amdt. 3552 included a two-year sunset provision, however, that was not in either of these bills. It was adopted by voice vote. S.Amdt. 3551 was offered by Senator Jeff Flake. This amendment added an advisory committee on risk sharing mechanism; similar language is included in H.R. 4871 . This amendment was adopted on a vote of 97-0. S.Amdt. 3550 was offered by Senator David Vitter. This amendment added a section requiring that one member of the Board of Governors of the Federal Reserve have experience with community banking. It was adopted by voice vote.
Senator Coburn offered S.Amdt. 3549 extending the timing of the recoupment provisions in the case of a large terrorist attack. A point of order on budgetary grounds was raised against this amendment and a motion to waive this point of order was rejected on a vote of 48-49. The amended version of S. 2244 was passed by the full Senate on a vote of 93-4.
section_title: Administration Reaction
paragraphs: The Office of Management and Budget (OMB) released a Statement of Administration Policy (SAP) on July 17, 2014. This SAP endorsed extension of the TRIA program along with reforms to "further reduce taxpayer exposure, increase private sector contributions, and better position the Program for future transition to the private sector." It also specifically supported Senate passage of S. 2244 .
section_title: House Floor Consideration
paragraphs: The House Committee on Rules met on December 9, 2014, and reported a rule ( H.Res. 775 ) making in order the House floor consideration of S. 2244 with an amendment in the nature of a substitute. This substitute amendment would
extend the program six years, until the end of 2020; decrease the federal loss sharing gradually from 85% to 80%; increase the program trigger by $20 million per year until it reaches $200 million from the current $100 million; increase the insurance marketplace aggregate retention amount by $2 billion per year until it reaches $37.5 billion from the current $27.5 billion. After $37.5 billion is reached, the amount would be set by the Secretary to equal the annual average of the aggregate sum of insurer deductibles for the previous three years; extend the various dates for mandatory recoupment by seven years; change in the mandatory recoupment provisions to require that 140% of the federal payments be recouped; require the Treasury to study the certification process and issue final rules governing the process, including a timeline; require additional data on the terrorism insurance market be collected by the Treasury and included in an annual report by the Treasury; and require a GAO study on the possible effects of instituting insurer premiums for the TRIA coverage and requiring capital reserve funds for terrorism.
The substitute amendment also includes the NARAB title relating to insurance agent licensing and the section relating to the makeup of Federal Reserve Board of Governors, which were added in Senate floor consideration. In addition, the substitute amendment adds a Title III, the "'Business Risk Mitigation and Price Stabilization Act of 2014.'' Title III would amend statutory provisions originating in the 2010 Dodd-Frank Act relating to derivatives and margin requirements for end users. Similar provisions to Title III passed the House as H.R. 634 on June 12, 2013, by a vote of 411-12.
The House took up S. 2244 as amended under H.Res. 775 on December 10, 2014, and passed the bill on a vote of 417-7. The House and the Senate adjourned on December 16, 2014, without further action on S. 2244 or other legislation to extend TRIA.
section_title: TRIA Reform Act of 2014 (H.R. 4871)
paragraphs: H.R. 4871 was introduced by Representative Randy Neugebauer and one cosponsor on June 17, 2014. The bill would extend the TRIA program five years while generally reducing the government's exposure to future TRIA losses, increasing post-event recoupment, and making several other changes to the program. The provisions include
a gradual reduction of federal share of losses from 85% to 80%; a gradual increase in program trigger from $100 million to $500 million and removal of the $5 million minimum certification amount; a separate treatment of Nuclear, Biological, Chemical, and Radiological (NBCR) terrorist attacks with lower trigger ($100 million) and higher federal loss sharing (85%); a requirement that certification occur within 90 days of an attack; an increase in the maximum of the mandatory recoupment amount to the total of insurer deductibles under the program (currently approximately $36 billion) and removal of a provision that decreases mandatory recoupment in the case of very large attacks; an increase of the mandatory recoupment from 133% to 150% of the federal share of losses; an allowance for small insurers to opt out of the TRIA requirement to make terrorism coverage available if it would create financial hardship or be financially infeasible; a requirement that additional data on the terrorism insurance market be collected by the Treasury and included in an annual report by the Treasury; and a requirement for a GAO study on the possible effects of instituting insurer premiums for the TRIA coverage and requiring capital reserve funds for terrorism, Congressional Budget Office (CBO) and OMB studies regarding budgeting and costs of federal insurance programs, and a Treasury study on small insurer market competitiveness. 
subsections: section_title: Committee Consideration
paragraphs: The House Committee on Financial Services marked up H.R. 4871 beginning June 19, 2014, and ordered the bill favorably reported on June 20, 2014, by a vote of 32-27. During the markup, a second title was added containing the text of the National Association of Registered Agents and Brokers Reform Act of 2013 ( H.R. 1155 ), which previously passed both the committee and the full House of Representatives. The committee rejected a substitute amendment by Representative Maxine Waters, which would have replaced the text with a 10-year reauthorization of the current program, on a vote of 27-31. The bill was reported ( H.Rept. 113-523 ) on July 16, 2014. 
 Table 1 below presents a side-by-side comparison of the current law and legislation that has seen committee or floor action, or both.