House Passes Terrorism Risk Protection Act, Attention Now Turns to Senate

In what is viewed by many leading insurance industry organizations as a significant step in the right direction, the U.S. House of Representatives passed the Terrorism Risk Protection Act (HR 3210) by a vote of 227-193 on Nov. 29.

According to the Washington Post, one of the bill’s co-authors, Rep. Michael G. Oxley (R-Ohio), said the House bill should not be viewed as bailing out insurers but as a measure to help keep the nation’s economy strong. Oxley said that the country needs to be prepared given the prevailing threat of potential terrorist attacks. The legislation was also sponsored by Rep. Richard Baker (R-La.), chairman of the Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee.

However, all eyes are now on the Senate as the industry waits for that legislative body to reach a compromise and produce its own bill. But exactly when that will happen and what the result will be is anybody’s guess at this point.

“The last day of their session keeps changing,” said Julie Rochman, senior vice president of public affairs for the American Insurance Association (AIA). “It was supposed to be five weeks ago, then four weeks ago, three weeks ago, two weeks ago. We just heard they’re going to stay in the week of the 10th as well, and they may stay beyond that.”

This is of particular concern considering that approximately 70 percent of reinsurance contracts will come due Jan. 1, 2001. If the Senate were unable to come up with a bill of its own within the coming weeks, industry analysts predict that an economic crisis could ensue, with terrorism coverage becoming largely unavailable. But most of those same analysts seem optimistic that the Senate will come up with its own bill, albeit one that will have significant differences in comparison with HB 3210.

“[Senate Majority Leader] Daschle has taken more of a leadership role right now,” Rochman said. “He’s been bringing his staff together with…key Democratic members…to come up with a common proposal.

“In all likelihood, [the Senate]….will basically ignore the House proposal,” Rochman continued. “It doesn’t mean there wouldn’t be elements of the House plan in what they do, but I think the Senate is very determined to come up with their own plan.”

Rochman noted that at any given moment, there have been as many as four or five various proposals floating around the Senate. Furthermore, Senators Dodd and Gramm have been working on this for some time, and other Senators like Hollings, McCain and Sarbanes have gotten energized in the process. “The different committees have been battling over who would have the bill first,” Rochman said. “As a result, none have dropped the tort reform provisions that appear in the House bill… Daschle has said he will not bring a bill to the floor that has those kinds of tort reform provisions in it.”

According to the Independent Insurance Agents of America (IIAA), HB 3210 provides that in the event a future terrorist attack causes an insurance company to incur a loss equal to 10 percent of its capital surplus or a loss exceeding $100 million, the federal government would provide the company with a loan. Such loans, which would be repaid by insurers, would be equal to 90 percent of total exposure.

“We supported passage of this bill in the committee and the House,” said IIAA CEO Robert A. Rusbuldt. “However, there is no doubt that this very different from a traditional reinsurance mechanism…Insurance companies have not traditionally priced their products based on potential loans they may have to repay… We’re not sure what kind of impact the House bill is going to have on rates, but there is no doubt it will clearly help make terrorism insurance more available.”

Rusbuldt added that it is politically very important for the Senate to produce a bill. “Daschle doesn’t want to be in the position of having had the House pass a bill, the President having a proposal, and [then if] we do have an insurance crisis, a lending crisis, a credit crisis because of the fact that you can’t get terrorism coverage in a commercial lines policy—who’s going to be blamed? It would be the U.S. Senate. In the Senate, the bottom line really is over the liability issue, which is for all practical purposes somewhat ancillary to the issue at hand, which is reinsurance for terrorist coverage.

“Everybody would like to have tort reform, but we don’t want the bill to fall apart over that issue. So the President clearly is going to have to weigh in on this…The Senate is very different from the House. Any one Senator can filibuster, which means you need 60 votes to break that, not just a simple majority of 51. It’s going to be tough for Sen. Daschle to find those 60 votes, but I think he has to. Somehow he has to navigate all of the twists and turns because it’s so important to the economy.”

According to Carl Parks, senior vice president of government relations for the National Association of Independent Insurers (NAII), everyone from the President to the Republican and Democratic leadership in the House and Senate have all said that this is “must do” legislation. “Sen. Daschle has said he intends to get a bill out of the Senate and ready to go to the President by the time they [finish session],” Parks said. “We have high confidence they will do so.”

However, he noted that at the same time, with two weeks to go, there are multiple bills now being introduced in the Senate and compromise negotiations going on at the highest levels. “It’s still got to be reconciled with the House bill. And we have to have a final version that can pass both the House floor and the Senate floor, and then be signed by the President.”

Rochman affirmed that the AIA still has several remaining issues with HB 3210. “We have been supporters of the process of moving something, figuring that the flaws in any legislation can be fixed as it moves forward.” But she added that it has been a tremendous opportunity for insurers to educate people about such things as how commercial insurance works, how workers’ comp works, what business interruption coverage is and what reinsurance is. “There’s no federal regulator for insurance, so we suffered in the first few weeks after we started talking about this legislation because there was nobody here who knew insurance,” she said.

Parks said that the NAII had issued a letter to all members on the Hill supporting passage of HR 3210. “There were at least a couple of provisions in there that we had worked really hard on,” he said. “We were very pleased that Oxley and the leadership responded to our concerns.

“Number one is an abiding concern for NAII and our member companies,” Parks continued. “We felt the way the legislation started out, rather than being based on the model that came out of the administration…the methodology that was used could have produced a pretty radical cross subsidization, meaning that small businesses and farmers [and similar entities] would have been paying a disproportionate share under this loan payback process that was set up in the House bill. But the House Financial Services Committee did respond to our concerns in that area, and they put in the final product provisions that we think dramatically decrease the likelihood of any cross-subsidization.”

Parks said another issue was that “where there’s an industry-wide aggregate retention, we wanted to make sure that…the individual companies would have their own retention level inside of the overall industry aggregate to make certain that an individual company, a smaller company, didn’t go insolvent before the overall industry aggregate was reached.” He noted that HB 3210 is positive in that regard in that an individual company retention level is built into it.

“The interesting question is what the final bill that is sent to the President will look like,” Rusbuldt said. “The Senate has been talking about a very different, more traditional reinsurance mechanism, where the House is more of a loan program. We’re going to have to marry those two proposals together.”

Topics Catastrophe Natural Disasters Legislation Reinsurance Politics