November 19th, 2014

Terror Developments: Overview of TRIPRA

Posted at 1:00 AM ET

Some may question why terrorism risk has a place in a document dedicated to emerging risk. Terrorism as a form of violence to promote cause or promote change is one of the original human conflicts. The wind blows and the earth shakes much the same way now as it has for hundreds, thousands of years. However, terrorism as a risk and a peril has evolved over the years and is a current concern in all parts of the world. Given the growing population, regional conflicts producing a broad list of potential instigators, the expansive reach of social media for extremists spreading their messages and recruiting and the diversity of possible attack modes to cause human and economic loss, terrorism does qualify as an emerging risk. With this contemporaneity in mind, we will discuss terrorism as an example of an emerging risk that is being aggravated by changes in geo-political events and in the continued notable challenges in modeling its ever changing underlying complexities.

Beyond the risk of terrorism itself, there is uncertainty in the US terrorism market coming from the fact that the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to expire on December 31, 2014 and US lawmakers have not yet authorized a renewal program. Without a successful renewal of TRIPRA, it is expected that insurance capacity for terrorism coverage will diminish and insurers and consumers may face substantial price increases, threatening the improving US economy. The potential of notably higher TRIPRA retentions being imposed on US insurers (or in the extreme case, no federal back-stop) also clearly exacerbates the “crystallization” characteristics of terrorism as “re-emerging” risk for many exposed carriers.

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During the second quarter of 2014 US Congressional activity involved two proposals being raised by legislative sub-committees. The full senate passed their committee’s recommended version 93-4 on July 17, 2014. The House of Representatives has yet to vote on their version and as of press time there is not a scheduled vote.

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