The Unexpected Threat to Super Bowl XLIX
By Howard Kunreuther and Erwann Michel-Kerjan, December 09, 2014
"If you’ve already bought tickets for Super Bowl XLIX or are looking forward to watching it with your friends and family, you may be surprised to learn that there is a chance it might not be played. Congress first needs to make a decision on renewing a piece of legislation that you possibly never have heard of: TRIA—the Terrorism Risk Insurance Act.
"TRIA was signed into law in 2002 in the aftermath of the 9/11 terrorist attacks, establishing a risk-sharing partnership between the federal government and the insurance industry that made terrorism insurance widely available to U.S. businesses—among them, organizers of sporting events. Without federal support, most insurers had been unwilling to offer coverage. TRIA was renewed in 2005 and in 2007. It is set to expire on Dec. 31 unless Congress renews it. With two weeks until the deadline, the clock is ticking.
"Before 9/11, insurers included terrorism coverage in all commercial policies without charging for it because the risk was below their threshold level of concern. But after paying $44 billion in claims for 9/11—at that time the most costly disaster in the history of insurance—most insurers excluded terrorism from commercial policies.
"TRIA addresses the insurance supply problem. Under the program, the federal government provides a financial back-up for insurers by covering a portion of insured losses above $27.5 billion, up to $100 billion, giving the insurance industry some certainty as to its maximum exposure. In return, insurers are required to offer terrorism coverage to all business clients, which can decide to purchase coverage or not. About 60 percent of large businesses carry terrorism insurance, indicating strong demand for it.
Unless TRIA is reauthorized during the next two weeks, insurers will have the right to cancel terrorism insurance policies after Jan. 1. They are likely to do so for fear of insolvency should a massive terrorist attack take place with no government backup. By law, only insurance companies offering workers’ compensation insurance must include terrorism peril in their policies, whether or not TRIA is renewed. The only way for those insurers to limit their exposure to terrorism—say, in large metropolitan areas where they are heavily concentrated—might be to cancel some commercial insurance policies altogether if TRIA is not in place. Some businesses would then be unprotected against a wide variety of risks, ranging from fire to industrial accidents."
See also the Wharton Risk Center report, “TRIA After 2014