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CHICAGO―A National Conference of Insurance Legislators’ (NCOIL) task force unanimously approved a resolution to extend the Terrorism Risk Insurance Act (TRIA) “for a sufficient period of time to permit discussion and development of a long-term solution” at the group’s summer meeting here yesterday. The resolution will be considered by the group’s Executive Committee today.
TRIA, the federal law which provides a national government backstop in case of terrorist attacks by foreigners in the United States, is not set to expire until the end of 2005 and a Treasury Department study examining the merits of renewal is due next June. Insurers, however, are pushing hard to have Congress renew it before then to avoid disrupting the commercial property insurance market.
They argue that because the law is set to expire with a so-called hard-end date of Dec. 31, 2005, any year-long policy put into effect in 2005 would not include terrorism coverage after TRIA’s expiration.
“Our biggest concern is the hard-end date,” Don Griffin, a lobbyist with the Property Casualty Insurers Association of America (PCI), told the NCOIL task force. “What’s magical about Dec. 31, 2005? Is the terrorism risk going away? Has it subsided in some way? I don’t think so.”
Stef Zielezienski, associate general counsel for the Washington, D.C.-based American Insurance Association (AIA), said that the hard-end date means “insurers have to guess when it ends and which policies will be covered, and they will have to seek conditional endorsements in the states.”
Birny Birnbaum, a lobbyist with the Austin, Texas-based Center for Economic Justice, told the task force that further extending TRIA would delay the development of a private-market or state-based alternative solution.
“Why are insurers going to work on developing an alternative when they’re getting a free reinsurance program from the federal government?” Birnbaum asked members of the task force. “Terrorism is a new reality of our generation now. So the question is: Are we going to develop a private-market or state-based solution for this peril or are we going to turn to the federal government for a permanent solution? I’m not only concerned about that as taxpayer, but as proponent of state-based solutions.”
The chairwoman of the task force, New York Assemblywoman Nancy Calhoun, repeatedly interrupted Birnbaum’s testimony and declared, “Many insurers wouldn’t have been able to continue without a federal backstop. I think it’s a small price to pay for the security of having insurance.”
TRIA calls for insurers to pay out 15 percent of the direct earned premium (DEP) on the prior year’s commercial book of business in 2004 and 2005 for an aggregate loss of more than $10 billion.
David Brummond, legal counsel for the Terrorism Insurance Program, told the task force that in the event of a $200 million loss, the insurer would pay out $47 million in claims (about 24 percent) with the federal government picking up the rest. For a $40 billion aggregate loss (slightly larger than the estimated insured losses related to Sept. 11), Brummond said the government would pay $30.6 billion (about 75 percent) with insurers paying the rest.
One bill has already been introduced in the House of Representatives to renew TRIA through 2007 and another one is on the way, according to AIA’s Zielezienski. HR 4634 (PDF), would eventually raise insurers’ deductibles to 20 percent of prior-year DEP in 2007 and trigger federal compensation after a $20 billion aggregate loss. It would also call for a study about whether to include group life insurance as part of TRIA.
Zielezienski said another bill, soon to be introduced by Massachusets Democrat Michael Capuano, would automatically include group life insurance within TRIA and also have a “soft rollout” sunset rather than a hard-end date, in order to accommodate the policies that would be written in 2007 but not expire until 2008. Industry lobbyists originally asked Congress to make TRIA a five-year program, arguing that at least that much time was needed to determine whether the private market could adequately handle the job of insuring terrorism risk.
Calhoun said that by pushing the insurance industry’s burden of terrorism risk up each year under TRIA, “this could be a way to push it to the private sector.”
Zielezienski, however, told IJ that TRIA, which he termed a “private-public risk sharing agreement,” may wind up being the “long-term solution.”
Med-mal resolution considered
Also yesterday, NCOIL’s Property-Casualty Insurance Committee heard from a wide range of lobbyists regarding its proposed resolution regarding medical malpractice and patient safety. The resolution calls for a number of steps to lower the incidence of medical errors in an attempt to make medical liability insurance more available and affordable.
Among the reforms discussed in polite but at times contentious testimony were: analysis of closed medical errors claims data, strengthening state medical boards, increasing fines on hospitals that don’t check a doctor’s record before hiring, and opening the National Practitioner Data Bank to the public.
Lobbyists for the insurance industry, trial lawyers, doctors and hospitals all chimed in with their respective positions in support or opposition to the various proposals. At times the discussion veered from the topic of patient safety toward tort reform. NCOIL has already decided on that issue, however. At its winter meeting in February the group passed a resolution favoring reforms such as caps on noneconomic damages and admission of collateral source evidence.
The group will take a further look at the issue during its annual meeting in November, and may eventually develop a model law or white paper.
Toward a single market conduct model
The most anticipated item on the agenda of today’s Executive Committee meeting is consideration of amendments to the NCOIL market conduct model law offered by the National Association of Insurance Commissioners (NAIC). The model is an attempt to streamline regulation and head off Congressional action to federalize. Insurers have long complained about the cost, scope and duplication of state-run market conduct exams.
The amendments are not minor. They include removing certain domestic deference requirements commissioners would have to meet before accepting a report from another state. Others would delete language giving insurers credit for being part of a best-practices organization and asking states to pass an NCOIL model law that would afford insurers some self-evaluative privileges.