BILL ANALYSIS �
AJR 34
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Date of Hearing: April 2, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AJR 34 (Cooley) - As Introduced: February 13, 2014
SUBJECT : Terrorism risk insurance
SUMMARY : Encourages the President and the Congress of the
United States to support, as soon as possible, the long-term
extension of the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (TRIPRA). Specifically, this
resolution :
1)Contains declarations about the importance of insurance in
protecting the lives and property of people and businesses,
and the role of insurance in maintaining strong local and
national economies.
2)Contains declarations concerning the impact the September 11,
2001, terrorist attacks had on the economy, and on the ability
of insurance markets to continue to provide protections
against losses due to terrorist activities.
3)Recognizes the value that TRIPRA, and its predecessors,
provided in ensuring the availability of insurance in
circumstances where commercial lenders would not make loans to
businesses without terrorism coverage.
4)Details the shared risk that TRIPRA apportions between
commercial insurers and the federal government.
5)Asserts that TRIPRA and its predecessors are the primary
reason the insurance and reinsurance markets supporting
coverage for losses resulting from terrorist acts have
remained stable.
6)Notes analysis from the National Association of Insurance
Commissioners (NAIC) to the effect that there is no evidence
the private insurance and reinsurance markets are capable of
reassuming the full scope of this risk.
7)Declares that the loss of TRIPRA would have serious negative
consequences on the insurance markets, and that the lack of
available insurance covering this risk would have a severe
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adverse effect on the California economy and its people.
8)Resolves that the President and Congress act as soon as
possible to extend TRIPRA, which expires on December 31, 2014.
9)Resolves that the Clerk of the Assembly deliver a copy of the
resolution to the Speaker of the House of Representatives, the
Majority Leader of the Senate, and to each Member of the
California House and Senate delegation.
EXISTING LAW :
1)Establishes TRIPRA, a federal law, to provide a federal shared
risk with private insurers to ensure the availability of
coverage for losses associated with terrorist acts.
2)Provides that the federal shared risk is not triggered until
aggregate annual losses across the insurance industry due to
terrorist acts exceed $100 million.
3)Provides that, after the aggregate threshold is reached, and
individual insurer must have incurred losses in excess of 20%
of its previous year's earned premium.
4)Provides that the federal government's share of losses in
excess of these thresholds is 85% and the insurer's share is
15%.
5)Establishes an annual aggregate cap for insured losses of $100
billion, after which neither the federal government nor the
insurers would be liable.
6)Provides for a post-expenditure surcharge mechanism for the
federal government to recoup its expenditures.
FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . The purpose of this resolution is to express to the
President and Congress the collective opinion of the State of
California that the TRIPRA is an important public-private
partnership that is crucial to the stability of the California
economy. With so many potential terrorist targets in
California, and the probability that private insurers will not
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be able to absorb the full scope of terrorist risk absent
federal assistance, allowing TRIPRA to sunset is not a
reasonable option.
2)Post-9/11 insurance market . According to the insurance
industry, after the devastating impact of 9/11, the terrorism
insurance market dissipated. As a result, it became
impossible to insure property that could be lost as a result
of a terrorist act. Because many businesses cannot afford to
take this risk, and many lenders cannot afford to make loans
on uninsured property, this lack of an insurance market posed
real and significant threats to the economy, which was already
shaken by the attacks. Congressional action in 2002 quickly
stabilized this market, and Congress has reauthorized and
expanded the program twice since 2002.
3)Current TRIPRA to sunset . It appears that many in Congress
are prepared to allow TRIPRA to sunset. Many Members of
Congress believe that either the federal government cannot
afford to retain this risk, that it is not the proper role of
government to intercede in the economy in this manner, or that
the program is simply unnecessary. In response to this latter
point, the NAIC has opined that it has seen no evidence that
supports the assertion that the commercial insurance industry
is either willing to or, more importantly, capable of, taking
on this risk. The commercial insurance industry is clearly
united in the belief that this market is unlikely to remain
stable in the event TRIPRA sunsets.
4)Impact on local government . According to CSAC Excess
Insurance Authority, a joint powers authority that provides
excess workers' compensation coverage to numerous local
self-insured public entities in California (94% of California
counties, 60% of California cities, as well as numerous school
and special districts), if TRIPRA sunsets, it anticipates that
the reinsurance it purchases from the private market -
reinsurance that is necessary to manage the risk faced by all
of its public sector members - will become unavailable.
CSAC-EIA fears that it is not merely "terrorism" coverage that
will dry up. Rather, it believes the risk of terrorism
exposures will cause a contraction of all catastrophic
reinsurance as a result of shrinking capacity.
REGISTERED SUPPORT / OPPOSITION :
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Support
American Insurance Association (sponsor)
Association of California Insurance Companies
Building Owners and Managers Association of California
California Business Properties Association
California Chamber of Commerce
California Financial Services Association
California Hotel & Lodging Association
Commercial Real Estate Development Association (NAIOP of
California)
CSAC Excess Insurance Authority
International Council of Shopping Centers
Liberty Mutual Insurance Company
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
RIMS, the Risk Management Society
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086