The US Senate voted yesterday to extend a programme that would cushion the blow to insurance companies in the event of a massive terrorist attack.

The Terrorism Risk Insurance Act (TRIA) was enacted in the aftermath of the September 11, 2001 attacks, when insurers were reluctant to provide coverage for terrorist attacks. It is due to expire at the end of the year.

The Senate voted 93-4 to extend the insurance programme through 2021. Under the programme, the federal government helps pay damages for attacks that cost more than $100 million.

Brad Kading, president of the Association of Bermuda Insurers and Reinsurers, told The Royal Gazette yesterday: “The overwhelming nature of the Senate vote sends a clear signal that TRIA will be extended in some fashion.

“All eyes are now on the House to see if the leadership has the votes to pass its version of the TRIA extension this month. If the House has the votes then a conference committee would be expected in the fall.”

With the reinsurance industry so strongly capitalised right now, thanks to the combination of a lower than normal incidence of catastrophe claims and an influx of alternative capital, some are arguing that the industry can shoulder more of the risk.

The House of Representatives is considering a similar bill that treats conventional and nuclear attacks differently, providing less federal help for attacks using conventional weapons.

Rep Randy Neugebauer, (Republican, Texas), sponsored the House bill. He said it protects taxpayers “from further Washington-sponsored risk”.

The Washington, DC-based think tank R Street issued a statement yesterday urging the House to reform TRIA to boost the role of the private sector in terrorism coverage.

“The insurance and reinsurance markets have grown significantly in the dozen years since the Terrorism Risk Insurance Act first was passed, as seen most recently by some reinsurers dropping exclusions for terrorism from standard policies,” R Street senior fellow RJ Lehmann said. “As private markets for terrorism insurance continue to advance, it is appropriate that the government’s role should retreat to ensure that private capital is not displaced by taxpayer bailouts.”

Sen Chuck Schumer, Democrat, New York), who sponsored the US Senate bill, said: “In a post 9-11 world, developers and business owners embarking on multi-year, multi-million or billion dollar construction projects need to be certain they can insure their investments. At a time when our economy is not growing as robustly as we’d like, failing to renew (the programme) would be particularly foolish. Without (the programme), it’s a virtual certainty that a large number of construction jobs and economic development would be lost.”

President Barack Obama supports the bill, the White House said yesterday.

“Terrorism insurance is necessary for a broad range of economic activities in areas across the country, and would be prohibitively expensive or unavailable in the absence of the programme,” the White House statement said.

The programme was first enacted in 2002. Since then, no covered events have occurred, according to the non-partisan Congressional Budget Office.

However, supporters say the programme has made it possible for commercial property owners to get coverage, especially large venues that might be more vulnerable to a terrorist attack.

Under the programme, companies that sell commercial property and casualty insurance must offer coverage for terrorist attacks. In exchange for this requirement, the federal government will help insurers cover losses under certain conditions. The government would recoup the money in the form of insurance industry surcharges.

Insurers must pay the first $100 million in total losses stemming from an attack. Individual insurers must also pay a deductible equal to 20 percent of the premiums they collected in the previous year for certain types of insurance.

If there are additional damages above those amounts, the federal government would pay 85 percent of an insurance company’s remaining claims, and the insurance company would pay the remaining 15 percent.

The Senate bill gradually makes private insurance companies pay a larger share, increasing the co-pay to 20 percent.

The programme only covers damages up to $100 billion. By comparison, insurance losses from the 9-11 attacks totalled about $40 billion, according to the Insurance Information Institute.