The House of Representatives is expected to consider HR 3210, the Terrorism Risk Insurance Act, this Thursday, Nov. 29.
One of the most important provisions of the bill of concern to National Association of Independent Insurers (NAII) members is cross-subsidization – the requirement that all insurance companies and their policyholders, regardless of their exposure to terrorism risks, contribute equally to pay for the losses suffered by those companies with significant terrorism losses.
In its original form, HR 3210 would have required smaller insurance companies – insurers that provide the bulk of insurance for “main street businesses” – to subsidize large national commercial insurance companies.
Many of these smaller companies have far less exposure to terrorism risks, compared to the large companies writing coverage for skyscrapers and manufacturing plants. NAII urged legislators to include language that provides the Secretary of the Treasury with authority to take into account all relevant risk factors such as territorial difference, exposure to loss, severity of loss and premiums when determining the “payback” assessments against insurance companies and surcharges against policyholders.
The final version of the bill achieves this goal by requiring the Treasury Secretary to consider the effect of assessments and surcharges on “urban and smaller commercial and rural areas.” Assessments and surcharges would still be spread through the industry, but the payback would be based on the exposure each company has to the risk. As a result, policyholders will be treated fairly and increases in premium to cover assessments will not be as severe for those who do not have the same risk as the large national “targets.”
While a Senate bill has yet to be introduced, both the Senate Banking and Senate Commerce committees have been working on differing versions of terrorism insurance legislation. Senate Majority Leader Tom Daschle (D-SD) brought together key Democrats on both committees to compromise on a single bill for Senate consideration that may be introduced this week.
Another issue that could slow the process on terrorism insurance legislation is the struggle over legal liability. Democrats generally oppose any limitations on liability while Republicans support tort reform provisions, particularly limits on punitive and non-economic losses.