The powerful House Committee on Financial Services could have a federal terrorism reinsurance proposal to consider next month although many politicians and observers are skeptical that Congress will actually replace or renew the current Terrorism Risk Insurance Act before it expires at year’s end.
Speaking on the day of the terrorist attacks in London, Rep. Sue Kelly, (R-N.Y.), a committee vice chair, maintained that most members of Congress would not be bound by the “erroneous conclusions” of the recent Treasury report on TRIA. Kelly said committee members are working on a permanent solution to attach to a bill renewing the current TRIA program.
While details of the House reinsurance proposal are still being worked out, the plan should “provide our nation with a network to respond to terror,” Kelly told members of the National Conference of Insurance Legislators in Newport, R.I.
Kelly’s announcement would appear to be a boost for supporters of TRIA. The Treasury report recommended that TRIA not be renewed in its current form and maintained that private markets could handle insuring terrorism attacks.
“The Treasury report diminishes prospects for TRIA renewal since it makes it clear the Administration won’t support it,” assessed Aaron Davis of Aon.
But TRIA-backer New York Superintendent of Insurance Howard Mills remained optimistic. “I’m hopeful. How can you not feel TRIA is necessary?” he asked.
Mills thinks that the Administration left the door ajar when in a letter to congressional leaders, Treasury Secretary John Snow set forth parameters for a severely scaled back federal role. Snow said the Administration would accept an extension of TRIA only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as commercial auto, general liability, and other smaller lines, that he said are less subject to aggregation risks and should be left to the private market. Snow also said a replacement law should include tort reforms to keep “unscrupulous trial lawyers” from exploiting the litigation system.
Republican leaders supported the Administration’s emphasis. House Majority Leader Tom DeLay (R-Texas) agreed with the recommendation that TRIA not be extended in its current form and that “any solution must depend on the ingenuity of the private insurance markets and not the involvement of the federal government.” House Speaker Dennis Hastert (R-Ill.) agreed that “TRIA may now be over-serving its purpose and inhibiting the development of a long-term marketplace.” House Financial Services Committee Chairman Michael G. Oxley (R-Oh.) said “a simple extension of the program is not in the best interest of American consumers or the economy.”
The Republicans’ comments placed them in the unusual position of agreeing with Consumer Federation of America’s J. Robert Hunter. “In general, the Treasury Department’s plan for TRIA is a good one. It would encourage private sector insurance alternatives and act as an incentive for businesses to maximize their efforts to prevent terrorism losses,” Hunter, a frequent Administration and insurance industry critic, said in a statement.
Business opponents
The Administration’s stance also places it in another unfamiliar position, in opposition to the insurance industry and other key business segments including real estate and construction that have generally supported its policies.
Real Estate Roundtable President and CEO Jeffrey DeBoer characterized the Treasury study as “seriously flawed,” noting it “fails to acknowledge that American businesses and property owners are already being told by insurers that they face the prospect of going without terrorism coverage, or having severely reduced limits, by year-end.”
The business-backed Coalition to Insure Against Terrorism rejected Treasury’s assertion that reinsurance capacity would increase in the absence of a federal backstop and claimed the study ignores TRIA’s value as a mechanism to help the economy rebound quickly in the event of another catastrophic attack.
Politicians in support of TRIA extension legislation including Sens. Christopher Dodd (D-Conn.), Robert Bennett (R-Utah), Harry Reid (D-Nev.) and Charles Schumer (D-N.Y.) stressed the need to protect real estate markets and the economy as a whole. “The Treasury report … misses the fact that large projects cannot get financing without terrorism insurance. Treasury evaluated TRIA in the context of it being a temporary program, but what is happening on the ground is proof that there is a permanent need to extend this critical risk insurance program,” Schumer stated.
Long term ideas
Since it appears that the Administration will only consider proposals that eventually reduce government involvement, insurers are scurrying behind the scenes to come up with their own long term proposals, lobbyists told state legislators at the NCOIL gathering. These proposals include provisions for a reinsurance pool, use of catastrophe bonds, tax deferred reserving, relaxation of price controls and other ideas that tie to renewal of the existing program.
Ernie Csiszar, president and CEO of Property Casualty Insurers of America, called for “a long-term program that stimulates more private sector participation, while maintaining the high level federal participation necessary to foster a functional terrorism insurance market.”
Meanwhile, insurer groups dismiss the $500 million trigger as much too high and fear that the tort reform matter raised by Snow is a side issue that could only delay consideration of the central issues.
Not everyone is convinced there is time to address both short and long term plans. “The first priority has to be to continue TRIA now,” argued David Snyder, American Insurance Association, vice president and assistant general counsel. Snyder said that consideration of major long term solutions would simply delay addressing the immediate need.
Report criticism
Supporters of TRIA have expressed frustration over the Treasury report itself, criticizing it as a political document whose conclusions are not supported by its own findings.
“It reads like a report where people were told to end up with the conclusion that private markets would work but they didn’t have the facts to back it up,” commented Robert Detlefsen, public policy director for the National Association of Mutual Insurance Companies.
“There are a lot of assumptions made that defy the facts,” added Martin DePoy, of the CIAT. When he signed TRIA into law in 2002, President Bush said it was to minimize the economic fallout from attacks. “They have forgotten this important point,” DePoy stated.
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