With the TRIA extension causing a stir in the US, Ben McKay examines the controversial NBCR provision

The bill to extend the Terrorism Risk Insurance Act (TRIA) that was introduced in the House of Representatives in June contains several valuable provisions such as the long-term nature of the extension and a reduced trigger.

However, the inclusion of a provision requiring insurers to “make available” coverage for weapons of mass destruction will have serious negative consequences for consumers and the nation’s economy. While we understand the desire of many members of Congress to include protection from financial losses from nuclear, biological, chemical and radiological (NBCR) attacks, such coverage cannot be effectively provided by mandate.

Because NBCR perils have never been covered in standard property and liability insurance contracts, there are many practical questions that have never been addressed regarding the coverage to be provided. Historical loss data on which to underwrite or rate such perils simply does not exist, and the projected losses could result in an unmanageable claims environment and significant financial problems for insurers, even with a more limited individual company deductible for such losses.

“Historical loss data on which
to underwrite or rate such perils simply does
not exist, and the projected losses could result in an unmanageable claims environment

Ben McKay Senior vice president of federal government affairs, Property Casualty Insurers Association of America

The debate is complicated because NBCR coverage is included today under all workers’ compensation policies. This ensures that workers who are injured or killed in a terrorist attack while on the job will get the protection intended by the workers’ compensation system. However, the sheer size of an NBCR attack threatens the solvency of the workers’ compensation system.

That’s why the Property Casualty Insurers Association of America and others are urging members of Congress to support a proposal that would create an NBCR study commission to develop a comprehensive national approach to the issue within the next 18 months. It is important to focus the debate on finding effective ways to address workers’ compensation coverage and on more thoroughly studying how the very serious long-term NBCR risk should be addressed. This way, Congress will be able to enact a long-term extension of TRIA before consumers face the uncertainty of renewing policies that extend into 2008 without terrorism coverage in place.