TRIPRA Expiration: Prepare for Sunset Clauses

The expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is still more than a year away, but businesses are likely to start feeling its effect in upcoming renewals, with sunset clauses expected to appear on policies that extend into 2021.

Despite general support from Congress to extend the US government’s terrorism insurance backstop past its current expiration date of December 31, 2020, the timetable for renewal is still unclear, leading to potential challenges for terrorism insurance buyers.

Lack of Clarity Surrounds TRIPRA Future

TRIPRA was renewed for the third time in 2015, extending the Terrorism Risk Insurance Act (TRIA) that was originally passed following the attacks of September 11, 2001, to maintain stability in the insurance market.

Many members of Congress agree that a federal backstop remains essential. And Marsh & McLennan Companies colleagues — including Marsh President and CEO John Doyle, who yesterday testified before the House Committee on Financial Services — continue to advocate for a robust reauthorization bill to help keep the terrorism insurance market viable for US buyers.

Congress has begun to consider a bipartisan proposal that would extend the federal backstop. But TRIPRA’s ultimate fate remains unknown at the moment, which is why insurers will likely introduce sunset clauses in any policies that spill into 2021.

There is still uncertainty as to what these sunset clauses will look like, and it is improbable that they will be uniform. There is also the potential that different clauses will cover various eventualities — for example, the possibility that TRIPRA is significantly changed, lapses, or fails to be extended.

The closer we get to TRIPRA’s expiration, the higher the odds that we will also start seeing insurers reassess pricing and capacity deployed as they review their terrorism exposures. This could present particular challenges for organizations with properties in central business districts and employers with significant employee concentrations.

Early Action Crucial

In view of the current uncertainty, risk managers should carefully analyze any policy that extends beyond 2020 and discuss sunset clauses with insurers and brokers to determine how these impact their coverage. Businesses might need to consider different insurers and analyze their positions on TRIPRA as they structure their insurance programs.

Secondly, businesses may wish to explore standalone terrorism policies, which — unlike TRIPRA-backed coverage — do not require government certification of an act of terrorism to be triggered. Standalone policies also tend to offer broader definitions and triggers — for example, they can provide global coverage and have the ability to cover nuclear, biological, chemical, and radioactive attacks. Buyers should be aware, however, that capacity in the standalone market could become restricted as TRIPRA’s expiration approaches, especially if Congress decides to alter or not renew it.

The federal backstop provided by TRIPRA remains crucial to the continued stability and health of the terrorism insurance market. But until Congress clarifies what the future of TRIPRA will be, insureds need a long-term strategy that addresses all potential outcomes.