According to Fitch Ratings, the failure of the US Congress to renew the Terrorism Risk Insurance Act (TRIA)—which serves as a federal backstop for insurance claims relating to terrorism losses—could “induce commercial insurers to retreat from larger metropolitan areas, reducing the availability of coverage and raising premium rates”. Such an outcome would leave individual insurers in the short term with exposures from a potential event above prior risk tolerance levels. The legislation is set to expire at the end of 2014.
The Fitch report reads: “if Congress fails to extend TRIA legislation, the impact would be felt in industries such as banking, commercial real estate and construction. The U.S. banking and real estate sectors were active participants in past lobbying efforts to pass TRIA legislation, as commercial real estate loans are required to have terrorism insurance coverage. A lack of available insurance coverage can create secondary economic repercussions that affect property values, construction activity and employment.”
Although the insurance industry has made great strides since 2001, Fitch maintains that the industry “remains in a challenging position in terms of modelling and underwriting terrorism-related risk”.
TRIA, Fitch Ratings, terrorism