The relief at TRIA's extension quickly turned to disappointment that more had not been done, says Laurie Kamaiko

At virtually the last possible moment the US Congress extended the Terrorism Risk Insurance Act, due to expire on 31 December 2005, for an additional two years, although with decreased federal government participation in any covered loss.

While insurers and many insureds breathed a sigh of relief, many were disappointed at the lost opportunity to structure the new act so as to encourage development of a creative private market alternative, and address issues revealed in the implementation of the original legislation.

The Extension Act substantially increases company deductibles' industry retentions and the amount insured losses must reach before federal participation is triggered. Thus, it is unlikely federal payments will be made except for the most severe catastrophic terrorist event. If September 11 were to take place now, little federal recovery would be afforded to most insurers.

Moreover, as TRIA is still limited to terrorist acts on behalf of a foreign interest, it is unlikely to include an event such as the London bombings involving domestic terrorists.

The Extension Act also potentially exacerbates a vigorously litigated issue arising from 9/11: When a terrorist group detonates multiple explosive devices near in time, is that one terrorist act, or more than one? The increased programme trigger is for each "certified act of terrorism", with certification as one act or more at the discretion of a treasury secretary appointed by an administration committed to limiting government participation and increasing private insurance's share for such losses.

The Extension Act bypassed a proposal by the House of Representatives and industry for an independent commission to identify alternative mechanisms for covering terrorism losses. Instead, it declared a Presidential working group to conduct yet another study on the affordability and availability of group life insurance (now not subject to TRIA), and of nuclear, biological, chemical and radiological events (known to be excluded under many policies subject to TRIA).

Although the purpose of TRIA, as stated in its initial legislation, is to encourage the industry to develop mechanisms to create a viable private insurance market, the Extension Act does little to further that goal.