cover story

Congress Considers Measures Affecting TRIA, NFIP and Marijuana

The United States Congress is currently considering several bills that impact the insurance industry. Some measures address two federally based programs: the U.S. Treasury’s Terrorism Risk Insurance Program, referred to as TRIA, and the Federal Emergency Management Association’s (FEMA) National Flood Insurance Program (NFIP). Both programs require long-term reauthorization to assure market stability for reinsurers, insurers, agents and consumers.

Since the nation’s 116th Congress has another year to consider legislation, provisions are subject to change. There was high confidence that Congress would reauthorize TRIA. However, lawmakers remain at loggerheads regarding the NFIP — especially concerning premium increases.

Congress is also considering how federal law should respond to the vast implications of the state legalization of marijuana, including its impact on the insurance industry.

More than a dozen bills addressing the federal treatment of marijuana were introduced by this Congress. Two in particular directly address insurance industry concerns. Both would provide protections to insurance industry participants seeking to cover and serve cannabis-related businesses. While federal legalization of the drug is gaining support, Congress remains divided.

It’s TRIA Time — Again

For the fourth time in 18 years, the insurance industry was awaiting final action on legislation that would reauthorize the federal backstop for reinsurers and insurers if a qualifying terrorism event should occur in the United States.

While maintaining the limits and requirements of the program in the 2015 law, the current reauthorization bills, both titled the Terrorism Risk Insurance Program Reauthorization Act of 2019 (HR 4634/S 2877), would extend TRIA for seven years. These measures also offer two new reporting obligations. The first directs the U.S. Treasury to include an evaluation concerning the availability and affordability of terrorism risk insurance in its biennial report to Congress; the second requires the General Accountability Office (GAO) to conduct a study on insurance coverage for cyberterrorism. The insurance industry widely supports the current legislation.

The bill was introduced in the House by Financial Services Committee Chairwoman Maxine Waters, D-Calif., and by Senator Thom Tillis, R-N.C., in the Senate. In November, the U.S. House of Representatives and the U.S. Senate advanced their respective bills with mostly bipartisan support. HR 4634 passed the House by a vote of 385-22. The Senate bill passed the Senate Banking Committee and then the full Senate with changes on December 19, 2019. The following day, the president signed the bill into law.

The last time the insurance industry awaited passage of a TRIA extension in 2014, some insurers limited contracts due to the uncertainty that Congress would pass a reauthorization bill before the expiration date. Congress did let the program lapse at the end of 2014, which resulted in a short period when the industry lacked the backstop. Two weeks into 2015, a new Congress passed a reauthorization bill, renamed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), and President Barack Obama quickly signed it into law.

[T]he Terrorism Risk Insurance Program Reauthorization Act of 2019 would extend TRIA for seven years . . . [and] offer two new reporting obligations: . . . an evaluation concerning the availability and affordability of terrorism risk insurance . . .  [and] a study on insurance coverage for cyberterrorism.


In an October 2019 letter to Congress, the American Academy of Actuaries wrote that temporary extension “creates an environment of uncertainty” that challenges reinsurers when quantifying their exposure to terrorism losses. For this reason, the Academy recommended a long-term or permanent extension of authorization to assure financial security and stability.

The Academy’s letter also discusses several issues related to cyberrisk, which led to the inclusion of language requiring the GAO to complete a study, due 180 days after the new measure becomes law, that analyzes cyberterrorism risks. The point of the study, says Rich Gibson, FCAS, the organization’s senior
property-casualty fellow, is to gain clarity about whether or how a cyber event would be covered by TRIA, particularly given that cyberterrorism is a relatively new risk.

Specifically, the study would:

  • Identify the potential cost of cyberattacks to the United States’ public and private infrastructure that could result in physical or economic damage.
  • Determine whether states’ definitions of cyber liability under property-casualty insurance are adequately priced to cover acts of cyberterrorism.
  • Assess whether the private market can adequately price cyberterrorism risks.
  • Determine whether the current risk-sharing arrangement under TRIA is appropriate for a cyberterrorism event.

The GAO report would be submitted to the House’s Financial Services Committee and the Senate’s Banking, Housing, and Urban Affairs Committee.

Generally, standard commercial property and liability coverages still exclude cyberterrorism and there is no clear coverage guaranteed under policies specific to cyber. There are also unresolved coverage issues concerning widespread secondary events caused by a cyberterrorism attack on public utilities or internet infrastructure, the letter states.

The current bill does not change program requirements for insurers and reinsurers. “Over time, partly through design and partly because of inflation, the share of hypothetical losses has shifted more toward the industry participants,” says Gibson.

The 2015 law prescribed incremental increases to program requirements capping at 2020 levels for the years afterward. To apply, an event must be certified as a qualified act of terrorism by the U.S. Treasury with consultation from the U.S. Department of Homeland Security and the U.S. Attorney General’s Office.

The insurer must also pay a deductible of 20% of its prior year’s direct earned premium for TRIA-covered commercial insurance lines on insured losses following an attack that exceeds an industry loss “program trigger” of $200 million. For insured losses that exceed an insurer’s TRIA deductible, the federal government reimburses the company for 80% of the losses and the insurer retains a 20% co-share (see AR September/October 2014).

Assuming an event incurs up to $37.5 billion in aggregated insured losses, TRIA allows the federal government to recoup federal loss payments from the insurance marketplace. Above that amount, which would be adjusted annually under the new bill, recoupment is discretionary.

NFIP Waiting Game

Agreeing on public policy for the NFIP is not easy. The NFIP provides flood insurance for nearly five million home and business owners and is intended to provide affordable and available flood coverage, but its congressionally decreed objectives often work against each other.

Because legislative consensus is difficult to reach, there have been 15 short-term extensions since the NFIP’s last five-year reauthorization ended on September 30, 2017. Having difficulty passing legislation is nothing new. Before passage of the Biggert–Waters Flood Insurance Reform Act of 2012, Congress passed 17 short extensions and the program expired four times.

Although lawmakers were able to move two bills through the House Committee on Financial Services last summer with bipartisan support, some unresolved issues remain. Two bills enjoy the most support. The National Flood Insurance Program Reauthorization Act of 2019 (HR 3167) is sponsored by Rep. Maxine Waters, one of the namesake legislators of the Biggert-Waters Act. HR 3167 is set to merge with HR 3111, the NFIP Reform Act of 2019, introduced by Rep. Nydia M. Velazquez, D-N.Y., with the goal of improving claims processing challenges that surfaced after Superstorm Sandy. The other bill is the National Flood Insurance Program Reauthorization and Reform Act of 2019 (S 2187), sponsored by Sen. Bob Menendez, D-N.J.

The NFIP provides flood insurance for nearly five million home and business owners and is intended to provide affordable and available flood coverage, but its congressionally decreed objectives often work against each other.


The measure introduced by Waters is a compromise bill that would fund grants for flood mitigation strategies, improve flood maps and adjust premiums for certain circumstances. It would also require an annual independent actuarial study to analyze the program’s financial position, recommend adjustments to underwriting standards, encourage program participation and make recommendations for quality control procedures and data accuracy in the underwriting process.

A significant part of the Menendez bill that affects the insurance industry was merged in the Waters bill. Like the Waters bill, it offers various incentives for property owners to mitigate risk and expands funding for more accurate mapping of flood risk across the country.

The Menendez bill, however, includes language that would affect the Write Your Own (WYO) program that allows participating insurers to write and service the standard flood insurance policy under their names. “The bill goes much further in reforming the Write Your Own program,” says Tom Santos, department vice president of research for the American Property Casualty Insurance Association (APCIA).

Specifically, the measure calls for a WYO rate reduction from 29.9% to 22.46%, which is a 25% cut. The bill is to ensure that policyholders do not overpay WYO companies that sell policies and service claims without risk exposure. Passage will likely lead to reduction in agents’ commissions, which would make it harder for agents to assist consumers in making educated choices about flood insurance and would disincentivize agents from selling flood coverage altogether, says Lauren Pachman, counsel and director of regulatory affairs at the National Association of Professional Insurance Agents. The cap would continue until FEMA determines the actual cost of providing these services as required under the Biggert-Waters Act.

The bill would also require FEMA to develop a fee schedule for WYO vendors, including but not limited to claims adjusters and engineering companies, and to reimburse actual costs per service or product. Meanwhile, FEMA has separately offered to change the current methodology for calculating the WYO expense ratios, and those changes, if effectuated, would also adversely affect insurers and agents, says Pachman.

One major difference between the Waters and the Menendez bills concerns how quickly rates could increase. The Menendez bill would place a ceiling on annual premium increases from the current upper limit of 25% to 9%. This differs from the Waters bill, which has also been criticized for not curtailing double-digit rate increases.

Premiums are expected to rise an average of 11.3% nationwide, with the average premium increasing from $873 per policy to $972 effective April 1, 2020. Add in the surcharge mandated by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and the Federal Policy Fee and the average total policyholder tab climbs from $993 to $1,092.

While Congress mulls over legislation, FEMA is moving forward. Last spring, the agency announced a new rating approach called Risk-Based Flood Insurance Rating or “Risk Rating 2.0,” which would deliver rates that better reflect individual property risks.

The agency initially announced that new rates for single-family homes would go into effect October 1, 2020. But more than 60 house members wrote top congressional leadership in early November  requesting  a delay of Risk Rating 2.0 implementation because it would raise their constituents’ premiums too dramatically. “Risk Rating 2.0,” they wrote, “will no longer use flood maps and zones to determine a homeowner’s premium rate, but rather a series of models that will ‘fundamentally change’ a property’s individual flood risk assessment and therefore (its) insurance price.”

Within days of the letter, FEMA pushed back Risk Rating 2.0 implementation to October 2021. Biggert-Waters charged FEMA with developing more accurate risk-based rating, Santos explains. “The concern is when they do that, premiums for some people will rise so quickly that they would be unaffordable. For others, premiums are likely to decrease as a result of more accurate, fairer risk-based rating,” he adds.

Fulfilling the requirements of Biggert-Waters has been fraught with peril. Within weeks of President Barack Obama enacting the 2012 bill, Superstorm Sandy damaged the densely populated and high-value real estate located in New York and New Jersey. In response to the historically costly storm, HFIAA delayed rate increases for four years.

Meanwhile, the insurance industry has made significant inroads in rating flood risk using technology, data and modeling, which has further encouraged private insurers to offer flood coverage. Applying similar methods could give the NFIP a better opportunity to compete against private insurers (see AR July/August 2017). More private insurers are expected to offer flood coverage thanks to a regulation that provides mandatory acceptance by private flood insurance lenders. Effective July 1, 2019, the rule was promulgated and finalized by five federal banking regulators in compliance with Biggert-Waters.

Currently, the NFIP, which has a $30 billion debt ceiling, owes about $20 billion to the U.S. Treasury. The $16 billion in insured losses from 2017’s Hurricanes Harvey, Irma and Maria would have surpassed that limit. Still, President Donald J. Trump agreed with Congress to forgive the losses later in the year.

A Potpourri of Legislation

Marijuana legalization is a complex issue for the insurance industry. Some insurers and brokers see the burgeoning marijuana industry as a new market. However, personal lines and workers’ compensation carriers are not only seeing increases in accidents and losses from the use of the psychoactive drug but are facing a flurry of legal ramifications (see AR January/February 2019).

Although several bills in Congress address a hodgepodge of issues stemming from state legalization of marijuana, there are a couple of legislative initiatives that directly affect the insurance industry.

The Secure and Fair Enforcement (SAFE) Banking Act of 2019 (HR 1595/S1200) would provide a federal safe harbor for financial service providers, including banks, insurance companies and brokers, to provide services to a “cannabis-related legitimate business” operating legally under state law. The bill should encourage insurers that have shied away from offering coverage to join the market.

While allowing commerce to move forward, the bill, which was introduced by House Rep. Ed Perlmutter (D-Colo.) and Sen. Jeff Merkley (D-Ore.), does not change marijuana’s Schedule I classification under the Controlled Substances Act. The bill was passed by the House in September by a bipartisan vote of 321 to 103 and is now under consideration by the Senate Committee on Banking, Housing, and Urban Affairs.

The Secure and Fair Enforcement (SAFE) Banking Act of 2019 (HR 1595/S1200) would provide a federal safe harbor for financial service providers, including banks, insurance companies and brokers, to provide services to a “cannabis-related legitimate business” operating legally under state law.


Another bill, the Clarifying Law Around Insurance of Marijuana (CLAIM) Act (S 2201), would also take steps to protect businesses in the insurance industry. Introduced by Sen. Menendez, the CLAIM Act is tailored to the insurance industry and would offer protections to companies providing insurance coverage to state-sanctioned cannabis-related businesses.

Specifically, the bill would prohibit federal regulators from discouraging insurers from offering coverage to a cannabis business, terminating or limiting an insurer’s policies because the insurer has offered coverage to a cannabis business, or taking adverse action on a policy solely because the owner is engaged in a cannabis business.

Like the SAFE Banking Act, the CLAIM Act would ensure protection to brokers and insurers along with their officers, directors, and employees in states where cannabis is legal. A significant part of the bill, which was sponsored by the insurance industry, was folded into the SAFE Banking Act. The Senate version was referred to the Committee on Banking, Housing, and Urban Affairs. A corresponding bill (HR 4074), introduced by Rep. Velazquez, has been referred to the House Committee on Financial Services.

The SAFE Banking Act has the best chance of passage, says Scott Sinder, the Council of Insurance Agents and Brokers’ chief legal officer and a partner with the law firm Steptoe & Johnson LLP. Even without the bill, he adds, the number of banks willing to work with the marijuana industry is now up to 500.

Although the APCIA supports the SAFE Banking Act and the CLAIM Act, the association encourages even greater federal regulation of the drug.


Sinder’s favorite bill is the Marijuana Revenue and Regulation Act (S 420/HR 1120), which would remove marijuana from the purview of the Controlled Substances Act but allow states to prohibit it within their borders. Sen. Ron Wyden (D-Ore.) introduced the measure that would also impose an excise tax on marijuana products and regulate them similarly to alcohol and tobacco.

“The Wyden bill would allow states to regulate as they wish but clean up all of the federal regulatory issues that have been plaguing hemp-derived CBD,” Sinder says. “It is the only ultimate solution currently pending . . .  all of the other proposals would essentially be interim solutions.” The tax would increase annually to a 25% sales price ceiling. Marijuana producers, importers and wholesalers would be required to obtain permits from the U.S. Department of the Treasury. Strict rules would prohibit the sale or distribution of marijuana in states where it is illegal. The bill was referred to the Senate Finance Committee and has a small chance of passage in the current Congress.

Although the APCIA supports the SAFE Banking Act and the CLAIM Act, the association encourages even greater federal regulation of the drug. This includes determining and implementing marijuana impairment standards, supporting employers’ rights to a drug-free workplace, issuing mandatory warning labels and requiring users of the drug to be age 21 or older, according to an APCIA statement offered to the Senate Committee on Banking, Housing, and Urban Affairs in July.

Annmarie Geddes Baribeau has been covering insurance and actuarial topics for nearly 30 years. Find her blog at