The terror attacks of September 11, 2001 changed millions of lives, with ramifications that continue to this day. The insurance industry was also forever changed by the events that took place that fateful day. Terrorist acts had long been excluded from traditional insurance coverages, and even with the passage of federal legislation designed to facilitate coverage, terrorism risks loom large over the industry. For many businesses, traditional insurance simply does not offer the protection needed against active shooter events or acts of terror. The insurance marketplace has responded, particularly in the realm of captive insurers. Captives represent a flexible insurance coverage option that addresses many of the shortcomings uncovered by insurance buyers.
In 2002, President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) of 2002 into law. This Act defined acts of terror for coverage purposes and attempted to provide a system of compensation for insured losses resulting from such acts. TRIA was created as a response to the withdrawal of reinsurers from the market following the 9/11 attacks; reinsurers bore much of the financial costs of the attacks and their aftermath. Once reinsurers retreated from the market, primary insurance providers began to exclude acts of terror from coverages, leaving business owners unable to protect their assets with specialized insurance.
TRIA was renewed several times and was eventually replaced by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which was extended in 2015 by President Obama and will expire at the end of 2020. Industry analysts suggest that TRIPRA has brought stability to the U.S. property insurance market, and has also spurred a significant increase in the number of captives accessing the federal program.
Even with federal programs like TRIA and TRIPRA, the traditional insurance market still places hurdles between business owners and specific coverages. Captives, then, may be the only available option for businesses and organizations desiring coverages typically excluded from traditional insurers, including limits for biological, chemical, and nuclear attacks.
In 2018, the captive insurance market saw significant growth; captive insurers accessing TRIPRA increased by 10%, and that figure is expected to continue growing in the coming years. One industry study showed that in the period from 2015 to 2018, over 40 new captives were created to provide access to reinsurance. Organizations have found that obtaining insurance coverage through captive solutions compares favorably to the expenses associated with traditional insurance, and in many cases may represent substantial savings over traditional policies. Captives have advantages over traditional insurance solutions as well, providing broader coverage with fewer exclusions. This solution also provides enhanced flexibility, offering coverage for emerging and evolving threats such as cyber risks, terrorism, and natural disasters.
It is unclear what effects will occur if TRIPRA is allowed to expire in 2020. Congressional pressure to extend this valuable program is in place, and many in the insurance industry expect favorable outcomes on the federal level. Still, industry advisors suggest that business owners and organizations utilizing captives work closely with insurance brokers to mitigate any gaps in coverage should the program expire. For now, it is clear that the captives insurance market is enjoying continued growth. This unique insurance solution represents the most flexible and the most capable of insurance coverages in protecting members from the risks associated with acts of terrorism and a host of other hard-to-place risks.
Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (317) 575-4440.