By TII News Service

WASHINGTON, JUNE 18, 2014: THE United States Government Accountability Office (GAO) has advised the Department of the Treasury (Treasury) to clarify whether and which type of losses resulting from cyber terrorism are covered under Terrorism Risk Insurance Act (TRIA).

In its report on Terrorism Insurance issued on 11th June, GAO underscored the need for the Treasury to c ollect and analyze data to better understand fiscal exposure and clarify guidance.

The report recommends that Treasury Secretary "gather additional information needed from the insurance industry related to how cyber terrorism is defined and used in policies, and clarify whether losses that may result from cyber terrorism are covered under TRIA – clarification could be made through an interpretative letter or revisions to program regulations, some combination or any other vehicle that Treasury deems appropriate."

GAO has noted that demand for terrorism insurance may have leveled off in the last few years. It says: "However, insurers are concerned about how a new type of terrorist threat, cyber attacks, would be treated under the program and some industry sectors have experienced difficulty obtaining coverage. Some terrorism risk insurers told us they do not know whether losses resulting from cyber terrorism would qualify for coverage under TRIA, which may impact their decision to cover it."

It adds: "In the past, Treasury issued an interpretive letter to clarify the treatment of NBCR risks under the program. TRIA is silent on cyber threats. Clarification ofthe coverage of cyber risks could spur additional capacity in the market for this type of risk. Additionally, clarification of cyber risks could help estimates of the government's fiscal exposure more accurately reflect the potential risks."

The report has also recommended that Treasury Secretary should collect the data needed to analyze the terrorism insurance market. It suggests: "Types of data may include terrorism coverage by line of insurance and terrorism insurance premiums earned. In taking this action, Treasury should determine whether any additional authority is needed and, if so, work with Congress to ensure it has the authority needed to carry out this action."

Gao also wants Treasury Secretary to periodically assess data collected related to terrorism insurance, including analyzing differences in terrorism insurance by company size, geography, or industry sector; conducting hypothetical illustrative examples to help estimate the potential magnitude of fiscal exposure; and analyzing how changing program parameters may impact the market and fiscal exposure.

In its comments on Gao's draft report, Treasury pointed out that collecting and analyzing market data would not provide a basis to meaningfully estimate the fiscal exposure of the government under the program and that the amount of federal payments to insurers resulting from acts of terrorism hinges on multiple variables that cannot be predicted with precision.