GAO finds underused TRIA needs fine-tuning
The U.S. General Accounting Office in a report found 'significant progress' in implementing the Terrorism Risk Insurance Act (TRIA), but noted the Treasury Department “has important work to complete in order to comply with its responsibilities under the act.”
Congress passed TRIA in 2002 to help commercial property-casualty policyholders obtain terrorism insurance and give the insurance industry time to develop mechanisms to provide such insurance after the act expires Dec. 31, 2005.
Under the act, the Treasury caps insurer liability and would process claims and reimburse insurers for a large share of losses from terrorist acts that meet certain criteria.
The Treasury Department, despite having “fully staffed” the Terrorism Risk Insurance office, has not yet “fully established a claims processing and payment structure,' the GAO said. 'Insurers are concerned that a delayed payment of claims by the Treasury … might seriously impact insurer cash flow.”
“It appears that Congress’s first objective in creating TRIA — to ensure that business activity did not materially suffer from a lack of available terrorism insurance — has been largely achieved. Since TRIA was enacted, terrorism insurance has been generally available to business. But most commercial policyholders are not buying the coverage,” the GAO noted.
Purchases of terrorism insurance “have been higher in areas considered to be at higher risk,” the GAO explained.
“Congress’s second objective — to give private industry a transitional period during which it could begin pricing terrorism insurance and develop ways to cover losses after TRIA expired — has not yet been achieved.” In fact, “insurance market participants have made no progress to date.” the GAO said.
“Insurers have also expressed concerns that the Department of the Treasury has not yet decided whether to extend through 2005 the requirement that insurers offer terrorism coverage on terms that do not differ materially from other coverage,” the GAO said.
For the full GAO report, see http://www.gao.gov/cgi-bin/getrpt?GAO-04-307 .