Business interests ranging from Walt Disney to Dow Chemical are among 260 organisations who have signed a letter to the US Congress calling for the Terrorism Risk Insurance Act (TRIA) to be reauthorised.

The US Chamber of Commerce rallied those who signed the letter in support of the continuation of TRIA, which provides a $100 billion insurance ‘backstop’, activated should there be a major terrorism event with catastrophic losses.

The signatories represent major US property owners and business operators and include insurance brokers and reinsurers including some with presences in Bermuda — Aon, Willis, AIG and Ace among them.

The spectre of a contraction of up to 85 percent in terrorism cover should TRIA not be renewed was thrown up by David Prosperi, vice-president of global public relations at Aon plc. He said: “The data we generate from our Aon GRIP data base supports the contention that reauthorising TRIA is essential to ensuring that terrorism cover is available and affordable for US clients.

“It is our view and the view of others that if TRIA is allowed to expire without replacement and the mandatory offer of coverage disappears, we anticipate a notable market contraction — nearly 85 percent of property insurance carriers look to exclude terrorism in the absence of TRIA.

“The marketplace for terrorism risk that would exist in TRIA’s absence would be constrained by capacity shortfalls, higher pricing and ultimately would provide a disincentive for insureds to purchase terrorism insurance.

“Bottom line, TRIA creates a private market for terrorism risk which reinforces and sustains the continued existence of this private market,” he said.

Other well-known names signing the letter to Congress included BP America, GE Capital Real Estate, United Airlines and sporting bodies the NFL, the NBA and NASCAR. Mr Prosperi said: “The significance of the large number of companies signing on to this letter, many of whom are outside the insurance/risk management sector, is that there is growing recognition across large, middle-market, and small businesses, of the economic impact that could result if TRIA is not reauthorised.

“Aon worked with the US Chamber of Commerce and other companies to generate support for this letter and for this issue.”

The letter, dated April 2, also urged Congress to “work swiftly” to reauthorise the law, which is set to expire at the end of this year.

It stated that the terrorism events of 9/11 mean that insurers cannot model “frequency, location, and the potentially devastating scale of modern terrorism”, and reminded the US Congress that insurers were forced to pull out of the marketplace and in the months following those attacks.

It continued: “the inability of insurance policyholders to secure terrorism risk insurance contributed to a paralysis in the economy, especially in the construction, travel and tourism, and real estate finance sectors”.

TRIA’s multi billion government backstop is at “virtually no cost to the tax payer”, says the letter, and without it: “our ability to mitigate further economic fallout in the event of an attack would be greatly impaired”.

The act, which first came into being in the aftermath of the 9/11 terrorism attacks, was extended in 2005 and then granted a further seven-year extension in 2007. In February, insurance industry executives lobbied the US government to permanently preserve the act in statute, but Congress is yet to come to a decision.

Ray Lehmann, co-founder and editor-in-chief of The R Street Institute, a think tank which promotes free markets and limited government, said the fact the letter to Congress has been sent is not surprising because of the TRIA renewals.

“And both times, the US Chamber of Commerce has weighed in.”

He said: “The industries most interested are commercial real estate and large employers who have a large concentration of employees in one location.”

He also pointed to the regional nature of the interest in TRIA. “The cities of New York and Washington had the greatest interest in the renewal, (and to a slightly lesser extent) other regions such as Chicago, Los Angeles and San Francisco ... Places where they have had perceived threats of terrorism”, as well as high profile locations such as Hollywood and Silicon Valley.

“It remains more of a regional issue than a national one,” he said.

Workers’ compensation is the most critical area of insurance coverage, Mr Lehmann explained.

“In this country workers’ compensation is a no-fault system. You must provide compensation for workplace injuries.”Without TRIA, he said the pricing would be “quite a bit higher,” and that could have a significant effect on the US economy.

An AIG spokesman also weighed in on the issue, saying: “AIG signed the letter because we strongly support a TRIA renewal, without delay. Without this important backstop, the terror insurance market would change significantly as insurers consider changes to policy terms, pricing and capacity. Even today, many insurance companies are issuing short-term policies to companies with large workers’ compensation aggregations, with the potential for TRIA expiration in mind. As important, our customers and companies across industries would face uncertainty over the availability and affordability of terrorism insurance.”

Mr Lehmann said that R Street is interested in seeing as much private sector capital employed in providing insurance coverage as possible, and added that the law should also encourage employers to purchase that coverage. “But,” he said, “if the law takes the place of private capital, that is a bad thing,” he said.

“The law should be extended, but it should be amended, to allow companies who wish to take a larger role than they are currently,” he said, and referring to TRIA, added: “It’s very difficult to compete with free coverage.”

Ace CEO Evan Greenberg believes the result of a renewal of the Act will be a greater role for the private sector. He wrote for the Ace Group annual report: “I can imagine, as a consequence of this renewal, insurers may assume a greater percentage of the risk — as we should, but within the bounds of what we can reasonably shoulder while protecting our balance sheets against the risk of ruin.”

Mr Greenberg called TRIA a “rare situation” where “legislation actually works as intended”. He told shareholders there was support for extending the Act on both sides of the aisle. “The question is whether this goes to the 11th hour and for how long TRIA is renewed.”

He explained: “Over the past decade, the insurance industry has shouldered an increasing share of terrorism risk as part of the TRIA quid pro quo: we are compelled to offer terrorism coverage in return for the government taking the extreme event risk, or what we call tail risk. Without this certainty, insurers would have to severely limit the coverage provided to fit their balance sheet limitations and in recognition of the difficulty terrorism presents in underwriting given the nature of the risk.

“This is hardly a bailout. In fact, if TRIA didn’t exist, the ultimate insurers would be the banks, whose mortgage collateral would be exposed, and industry in general, which would have responsibility for its workers and property.”