Terrorism Insurance Captives
First published February 29, 2020
Several hundred of the world’s largest and most profitable corporations have set up their own personal insurance companies (captives) engineered to extract hundreds of millions and often billions of dollars in terrorism reinsurance from the Terrorism Risk Insurance Act (TRIA). The cost of this corporate shortcut lands directly on the shoulders of small businesses, nonprofits, local governments and other commercial insurance consumers.
Because state law prohibits most insurance commissioners from providing US Treasury or anyone else information about the captives they regulate, those on the hook for the policyholder surcharges attributable to these financial schemes have been kept in the dark. While well hidden from public eyes, captives make up an astounding 1/3 of the terrorism insurance market by premium and up to 95% of potential payouts from the backstop.
The attached explains how multinational corporations have rerouted their terrorism risks to flow through the federal backstop and onto the balance sheets of US small businesses, churches, school districts and others.
While it is possible the formation of a terrorism insurance captive is socially responsible, the tightly woven blanket of secrecy enveloping these structures stymies public debate and undercuts the credibility of any such conclusion. In order to grant stakeholders at least minimal transparency, US Treasury should introduce a rule to the Terrorism Risk Insurance Program requiring the publication of basic identifying and risk information with respect to all program participants (including captives) in an online registry.