Treasury Extends the 'Make Available' Provisions of the TRIA

The Treasury Department announced on June 18 that it will extend the “make available” provisions of the Terrorism Risk Insurance Act (TRIA) through 2005, the third year of the federal Terrorism Risk Insurance Program.

The “make available” provisions require that, from the date of enactment (Nov. 26, 2002) through the last day of the second year of the program (Dec. 31, 2004), each insurer must make available, in all of its commercial property and casualty insurance policies, coverage for losses due to covered acts of terrorism that does not differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than acts of terrorism. This decision is triggered by the TRIA, which requires that the Secretary of the Treasury determine whether the “make available” provisions should be extended through the third and final year of the program by Sept. 1, 2004. Additionally, the TRIA mandates that the Treasury complete a study of the effectiveness and success of the overall Act by June 2005. This comprehensive study is independent from the “make available” determination.

In making the determination to extend the “make available” provisions, the Treasury Department considered the perspective of both users and providers of terrorism risk insurance. The Treasury had published a request for comment in the Federal Register on May 5, 2004, on the statutory factors (eg, effectiveness of the TRIA, capacity, availability, and affordability) with regard to the “make available” determination. When the comment period closed on June 4, 2004, almost 200 comments were received. Based on the comments received and other information, the Treasury found a widespread belief that the “make available” provisions have contributed to the effectiveness of the TRIA by providing customers with offers of terrorism risk insurance that would otherwise have been unavailable. The Treasury also found that it is widely believed that the “make available” requirement has contributed to the affordability and availability of terrorism risk insurance under the program, and may have increased the attention devoted by insurers to questions of capacity to offer coverage. The Treasury found that while little evidence was provided in direct support of these views, there also was little or no evidence presented that the “make available” provisions had harmed affordability, availability, or capacity.

Based on these findings, the Treasury determined to extend this requirement into the third year. Although it had until Sept. 1, 2004 to determine whether or not to extend the “make available” provisions of the TRIA, the Treasury's determination was made well in advance of the deadline in order to avoid any potential disruption in the terrorism risk insurance market.

The Treasury is currently in the information gathering stage of the congressionally mandated study of the Act's overall effectiveness.

To assist in this evaluation, the Treasury is conducting a comprehensive multiwave survey with a nationally representative sample of policyholders, insurers, and reinsurers, which will allow it to obtain a broad view of the market conditions and dynamics. When the information gathering stage is completed, the Treasury will then study and analyze the information in preparation of the final report to Congress.

The Treasury Department has also proposed a rule that would govern litigation management issues related to the TRIA. This proposed rule sets forth the procedures for obtaining the advance approval for settling certain causes of action relating to terrorist acts. The proposed rule governing litigation management issues was published in the May 6 issue of the Federal Register, 69 Fed. Reg. 25,341. The comment period closes on July 6.

The Treasury Department announced on June 18 that it will extend the “make available” provisions of the Terrorism Risk Insurance Act (TRIA) through 2005, the third year of the federal Terrorism Risk Insurance Program.

The “make available” provisions require that, from the date of enactment (Nov. 26, 2002) through the last day of the second year of the program (Dec. 31, 2004), each insurer must make available, in all of its commercial property and casualty insurance policies, coverage for losses due to covered acts of terrorism that does not differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than acts of terrorism. This decision is triggered by the TRIA, which requires that the Secretary of the Treasury determine whether the “make available” provisions should be extended through the third and final year of the program by Sept. 1, 2004. Additionally, the TRIA mandates that the Treasury complete a study of the effectiveness and success of the overall Act by June 2005. This comprehensive study is independent from the “make available” determination.

In making the determination to extend the “make available” provisions, the Treasury Department considered the perspective of both users and providers of terrorism risk insurance. The Treasury had published a request for comment in the Federal Register on May 5, 2004, on the statutory factors (eg, effectiveness of the TRIA, capacity, availability, and affordability) with regard to the “make available” determination. When the comment period closed on June 4, 2004, almost 200 comments were received. Based on the comments received and other information, the Treasury found a widespread belief that the “make available” provisions have contributed to the effectiveness of the TRIA by providing customers with offers of terrorism risk insurance that would otherwise have been unavailable. The Treasury also found that it is widely believed that the “make available” requirement has contributed to the affordability and availability of terrorism risk insurance under the program, and may have increased the attention devoted by insurers to questions of capacity to offer coverage. The Treasury found that while little evidence was provided in direct support of these views, there also was little or no evidence presented that the “make available” provisions had harmed affordability, availability, or capacity.

Based on these findings, the Treasury determined to extend this requirement into the third year. Although it had until Sept. 1, 2004 to determine whether or not to extend the “make available” provisions of the TRIA, the Treasury's determination was made well in advance of the deadline in order to avoid any potential disruption in the terrorism risk insurance market.

The Treasury is currently in the information gathering stage of the congressionally mandated study of the Act's overall effectiveness.

To assist in this evaluation, the Treasury is conducting a comprehensive multiwave survey with a nationally representative sample of policyholders, insurers, and reinsurers, which will allow it to obtain a broad view of the market conditions and dynamics. When the information gathering stage is completed, the Treasury will then study and analyze the information in preparation of the final report to Congress.

The Treasury Department has also proposed a rule that would govern litigation management issues related to the TRIA. This proposed rule sets forth the procedures for obtaining the advance approval for settling certain causes of action relating to terrorist acts. The proposed rule governing litigation management issues was published in the May 6 issue of the Federal Register, 69 Fed. Reg. 25,341. The comment period closes on July 6.