Insurance Industry Encouraged About TRIA Renewal

The House Republicans’ proposed bill to extend the Terrorism Risk Insurance Act (TRIA), set to expire at the end of this year, is “encouraging,” but there are also concerns, insurance industry experts say.

Representative Randy Neugebauer (R-Texas) introduced the TRIA Reform Act of 2014 on June 17, which would modify and extend TRIA. TRIA provides a government backstop for insurers and reinsurers in the event of a catastrophic terrorist attack. The proposed bill would extend the program for five years and make insurers more active participants in the market, according to American Banker. The proposed bill also distinguishes attacks that are nuclear, chemical, biological or radiological (NBCR) from other terrorist attacks and increases the industry’s cost for conventional attacks.

Earlier in June, the Senate Banking Committee approved a bill that would extend TRIA for seven years, increase insurers’ co-pay for all attacks from 15% to 20% after a deductible, and increase the threshold for mandatory recoupment from $27.5 billion to $37.5 billion.

“The House bill is a very encouraging sign, especially because it comes on the heels of the Senate bill (S.B. 2244) a few weeks ago,” said Robert P. Hartwig, president and economist of the Insurance Information Institute. “Though the bills contain substantive differences, I think a compromise can and will be reached. Time is of the essence as the uncertainly in the markets is already causing disruptions in the form of exclusionary language and because it is an election year there are relatively few days left on the Congressional calendar.”

American Insurance Association (AIA) President Leigh Ann Pusey lauded introduction of the bill, saying that it “adds to the growing momentum behind TRIA’s reauthorization in both the House and Senate. We urge the Committee to swiftly mark up the TRIA Reform Act and move it to the House floor for a vote before the August recess.”

The new law would progressively raise the program’s threshold following conventional attacks from $100 million to $500 million. Insurers would make a 20% copayment after a deductible in the wake of a conventional attack, compared to 15% for NBCR attacks.

Hartwig noted that the insurance industry has some concerns related to the “bifurcation” of NBCR and non-NBCR risks. “Under the bill, non-NBCR risk would be subject to the increased trigger which would rise from its current $100 million to $500 million by 2019,” he said. “Likewise, there’s concern about the increase in the industry’s co-share from 15% to 20%. In both instances, the increase in the industry exposure to potential loss could result in reduced capacity, particularly capacity originating with smaller insurers. The bifurcation also adds an unnecessary layer of complexity to the process.”

In a statement, Pusey also expressed concern “with certain provisions of the bill that could lead to decreased market capacity. Most notably, the creation of a bifurcated approach for nuclear, biological, radiological and chemical (NBCR) attacks vs. conventional attacks falsely assumes that the insurance market operates based on the same distinctions.” She said that differentiation based on the type of event introduces “needless complexity, creating potentially adverse consequences under the program and insurance market capacity. We are also concerned about the steep increase in the program trigger and co-share, which could also lead to a reduction in capacity.”

Hartwig concluded that while the success of TRIA is “unambiguous, providing continuous benefits to the American economy at essentially no cost to taxpayers, the current resurgence of terrorism in Iraq reminds us that the threat of terrorism is omnipresent.”

He added that some TRIA opponents cite that the bill was originally designed as a temporary measure. “While that may be so, the past 13 years have demonstrated that the U.S. remains under constant threat. Last year’s Boston Marathon bombing made that crystal clear. Prior to the Marathon bombing there had been many unsuccessful terrorist plots—ranging from efforts to bring down airliners to bomb plots in several US cities.”

Neugebauer said he believes the TRIA Reform Act of 2014 will lead to a stronger private market, preventing U.S. taxpayers from making ongoing payments to support another federal program. The House banking committee will vote on the bill on June 18.

Winter Weather Third-Largest Cause of Cat Losses

Winter Snow Storm

Weather damage never goes out of season. According to a new report from the Insurance Information Institute (I.I.I.), winter storms are historically the third-largest cause of catastrophe losses, behind only hurricanes and tornadoes.

“Winter storms accounted for 7.1 percent of all insured catastrophe losses between 1993 and 2012, placing it third behind hurricanes and tropical storms (40 percent) and tornadoes (36 percent) as the costliest natural disasters,” said I.I.I. President Robert Hartwig.

Insured Catastrophe Losses

Between 1993 and 2012, winter storms resulted in about $27.8 billion in insured losses—or $1.4 billion per year, on average, according to Property Claims Service for Verisk Insurance Solutions.

A December ice storm in North Texas left at least $30 million in residential insured losses in its wake, the Insurance Council of Texas reported. This figure does not include estimated damage to vehicles or government property, nor does it take into account the significant municipal expense of safety or cleanup measures. Dallas County alone spent $300,000 to $400,000 just to battle slick roads, according to conservative estimates from County Judge Clay Jenkins. He told Insurance Journal that, while sanding and salting roads constituted some of the county’s greatest efforts, the biggest cost came from closing offices, including the court system. Weather-related shutdown resulted in lost productivity of about $1.5 million, he said.

Nation-wide, December weather caused total economic and insured losses estimated in the hundreds of millions of dollars and claimed 29 lives, Aon Benfield reported.

But 2013 should have made some fair-weather friends in the insurance industry. Last year, according to Munich Re, direct overall losses caused by global disasters amounted to around $125 billion and insured losses of around $31 billion. While exceptionally costly, these were below the 10-year averages of $184 billion and $56 billion, respectively.

Midwest Tornado Insured Losses Could Top $1B

A series of tornadoes in the Midwest on Sunday that killed six, levelled homes and businesses and left tens of thousands without power may top $1 billion in insured losses, according to risk modeller RMS.

The New York Times reported that on Nov. 18, Illinois Governor Pat Quinn declared seven counties disaster areas and said he would seek relief funding from state and federal agencies. He also said the series of tornadoes were the deadliest to occur in the state in November.

Matthew Nielsen, director of model product management at RMS said in an email that while damage estimates are far from final, “There is a good chance that Sunday’s outbreak will likely rank as one of the top five most significant November outbreaks since 1950.”

The magnitude and severity of the tornado outbreak was driven by two factors, he said, “Unseasonably strong thermodynamic instability and unusually strong wind shear throughout the depth of the atmosphere.”

Robert P. Hartwig, Ph.D., president of the Insurance Information Institute said from the Chicago airport, en route to assess the tornado damage first hand, that there is “No question that it will at least be the second costliest tornado event of the year.” The largest event this year was the Moore, Okla., tornadoes, which approached $1.6 billion in insured losses. By comparison, damage from the Midwest tornadoes is spread over a wider area, impacting Illinois, Michigan and Indiana.

“There are thousands of damaged structures throughout the states that were hit—residential and commercial,” he said. “What’s difficult to tell at this point is the extent of commercial damage and that can really drive up the losses. Not only are commercial structures more expensive, but there is often a business interruption component as well.”

He explained that insured losses for tornadoes are typically higher than those for floods. Because there was no flooding involved, more of the losses would be covered by insurance, meaning a faster recovery. “The vast majority of property owners here are going to have insurance coverage. Uninsured losses may include some business interruption loss, vehicles that didn’t carry comprehensive coverage and uninsured structures,” he said.

As is generally the case after tornadoes, “Most people will be getting checks [from their insurers] very quickly, which will help them with temporary living expenses. It will also help them make initial repairs more quickly and provide funds for debris removal so that rebuilding can start,” Hartwig said.

Low Insurance Impact Expected from Haiyan

Damage in the Philippines from Typhoon Haiyan is widespread, with new information emerging daily. Insured losses, however, are expected to be low, with the greatest impact on smaller reinsurers, according to insurance industry reports.

A.M. Best said in a briefing that it expects insured losses to be minimal, as non-life insurance is less than 1% of the country’s gross domestic product.

“Insured losses in the Philippines will be spread across many segments, including per­sonal lines, fire and property, and marine hull. Fire/property and marine hull will be well reinsured through the major global reinsurers and through Lloyd’s, which will also absorb some marine losses on a primary basis. Net losses to primary insurers will be limited, and some commercial losses also may be covered through captives or other forms of self-insurance,” the report said.

A.M. Best expects Haiyan to be an “earnings event for reinsurers” – more substantial for smaller, regional reinsurers. While it is expected to have minor impact on larger global companies, it is “yet another loss on top of recent catastrophes in Europe.”

In an update, Dr. Robert Hartwig of the Insurance Information Institute said that economic damages will be significant, with Haiyan having a “major negative impact on the Philippine economy.”

He noted two reasons why insured losses from Haiyan are likely to be low:

• The storm did not have a direct impact on Manila, the capital and largest city in the Philippines, well to the north of the track of Typhoon Haiyan.

• The Philippines is a small market for property/casualty insurance, with premiums of just $1.23 billion written in 2012. This amounts to $12.70 per person, compared to $1,223.90 per person in the U.S. “Even compared with the rest of Asia, the penetration of insurance in the Philippines is relatively low,” Hartwig said in the report, adding that per capita premiums in Asia were $91.90 in 2012.

In 2012 the Philippine’s GDP per capital was ranked 124th out of 184 countries by the International Monetary Fund, he said. The Philippine economy has grown steadily, however—at an annual rate of 7.5% as of the second-quarter of 2013—and should become better insured in the future.

Philippines Life and Nonlife Insurance Premiums, 2012


Direct premiums written

Nonlife premiums *


Life premiums


Total premiums


Percent of total world premiums


* Includes accident and health insurance.

Source: Swiss Re, sigma, No. 3/2013.