Terrorism Risk Insurance Act

Dear Chairman Johnson, Chairman Hensarling, Senator Crapo and Representative Waters:

The nation’s governors support the Terrorism Risk Insurance Act (TRIA) and urge Congress to reauthorize this critical insurance backstop before it expires on December 31, 2014.

Since TRIA became law in 2002, it has helped create a federal backstop for private insurance markets to ensure the widespread availability of affordable insurance against terrorism risks. Sixty-two percent of domestic businesses have obtained such policies, but the private insurance market remains unable to determine the frequency and severity of terrorism attacks. Maintaining a public-private partnership that relies on a federal backstop and private market participation is necessary to protect domestic businesses and consumers.  It is also important to note that this public-private partnership guarantees that insurers bear primary financial responsibility for losses from certified acts of terrorism for which they must make the coverage available.

An expiration of TRIA would be particularly disruptive to the workers’ compensation market, ultimately restraining economic growth. Workers’ compensation benefits are codified in state law and an employer cannot decline to provide coverage for acts of terrorism. Without TRIA, workers’ compensation insurers and reinsurers will likely increase premiums or decline to write coverage for businesses with many employees concentrated in single locations or near iconic properties.

Our nation remains vulnerable to terrorist attacks and the costs resulting from such atrocities. While the current model attempts to mitigate financial risk to the federal government, reauthorization should encourage capacity building for terrorism insurance in the private marketplace to ensure that it is primarily responsible for losses.

Passing a long-term reauthorization of TRIA provides certainty for providers and purchasers involved in renewals and reassures capital markets and lenders who, in the event of a terrorist attack, could face defaults on outstanding loans.  The nation’s governors urge Congress to pass a long-term reauthorization of TRIA that provides necessary market predictability before the program expires.

Sincerely,