Property/casualty insurers are welcoming the unveiling of a House terrorism insurance bill as a sign of progress even though there are provisions in it they oppose.
Introduced by Rep. Randy Neugebauer, R-Texas, chairman of the Insurance and Housing Subcommittee, the House bill (H.R. 4871) would extend the Terrorism Risk Insurance Act (TRIA) program for five years, increase the insurer co-pay to 20 percent, and create a new program bifurcation for nuclear, biological, chemical, or radiological (NBCR) type of attacks. This House legislation also increases the program’s trigger from $100 million to $500 million.
The House bill differs in several respects from a version passed earlier this month by the Senate Banking Committee, a version the industry appears to prefer. That bill now awaits a vote by the full Senate.
While property/casualty insurance representatives are concerned about some of the fine print in the House bill, they are for now just pleased that there is some movement on the TRIA issue because time is running out. The TRIA program is set to expire at the end of the year. Insurers say they are being forced to alter their policies to exclude terrorism coverage due to uncertainty over the continuation of the backstop program.
Supporters are hoping the House committee will finalize the bill quickly in time to move it to the House floor for a vote before the August recess.
First enacted after the Sept. 11, 2001, terrorist attacks, the TRIA program requires insurers to offer affordable coverage against acts of terrorism, but provides for upfront federal funds to help cover losses in the event of a catastrophic attack. Taxpayers are protected by a recoupment provision that reimburses the government over time at 133 percent.
“With just months until the TRIA program expires, any sign of progress is a welcome one,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC.
The P/C industry prefers the Senate bill for its seven year extension of TRIA, as opposed to the House’s five year. The longer extension would lead to more certainty in a marketplace where large construction projects can take as many as 10 years to complete, according to supporters.
Some in the industry don’t like the House’s five-fold increase in the trigger from $100 million to $500 million, which shifts more of a burden onto insurers.
“The dramatic increase in the trigger is an unacceptable change in the program that will have a punitive impact on smaller, regional, and niche insurers and their policyholders. Increasing the program trigger does not accomplish any of the stated objectives of the TRIA program’s critics – namely, it does not reduce taxpayer exposure or shift more of the risk to the private sector. Rather it will serve to either concentrate risk or reduce overall take-up rates as smaller and medium-sized insurers are forced from the program,” said NAMIC’s Grande.
The House bill’s treatment of nuclear, biological, radiological and chemical (NBCR) attacks is also a concern to the P/C industry.
Under the House bill, NCBR would refer to only acts of terrorism that involve the release of radioactive material or poisonous biological or chemical material, not any catastrophic cyber or other attack not involving these agents.
The creation of a bifurcated approach for NBCR attacks vs. conventional attacks “falsely assumes” that the insurance market operates based on the same distinctions, according to Leigh Ann Pusey, president and CEO, American Insurance Association (AIA).
“Differentiation based on the type of event introduces needless complexity, creating potentially adverse consequences under the program and insurance market capacity,” Pusey said.
“Treating NCBR attacks differently than conventional events may result in ambiguity after an attack,” said Tim Pawlenty, CEO of the Financial Services Roundtable. “We need to be able to count on certainty and an effective, clear response. We also need to ensure that program reforms, such as those to increase the trigger to $500 million and adjust the co-share, do not decrease market capacity.”
Pusey also said her association’s member carriers are also concerned about the increases in the program trigger and co-share, which they warn could lead to a reduction in capacity.