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The House Financial Service Committee has come up with what at least one group is calling a “workable” proposal to renew the federal terrorism insurance act for two years.
The bill will be marked up by the committee beginning next Wednesday and most likely heard after Congress returns from Thanksgiving recess, Insurance Journal has learned.
The insurance industry, joined by real estate and other business groups, has been pressing for renewal of the existing act, the Terrorism Risk Insurance Act, before it expires on Dec. 31, 2005.
The extension proposal creates so-called “silos” for major coverage areas of workers compensation, property, casualty and NBCR (coverage for nuclear, biological, chemical and radiological attacks), with each silo being assigned its own deductible. The measure excludes commercial auto, which is now covered under TRIA, while proposing to add group life. Insurers would be required to offer NBCR coverage.
Federal intervention would be triggered only if losses exceed $50 million in 2006 and $100 million in 2007.
In the new plan, the distinction between foreign and purely domestic acts of terrorism would be removed so that domestic terrorism would be covered.
The co-share paid by insurers, which is now at 10% for all triggered events, would increase for smaller events and decrease for so-called mega events, with a 20% co-share for the first $10 billion down to 5% for events more than $40 billion.
Insurers would pay back any federal monies through policyholder premium surcharges that would be capped at 3%.
The deductibles for each TRIA coverage would rise as follows for 2006 and 2007:
Workers’ compensation: 17.5% plus 2.5% / year
Property: 20% plus 2.5% / year
Group Life: 20% plus 2.5% / year (to be added during mark-up)
Casualty: 25% + 5% / year
NBCR: 7.5% plus .75% / year
The proposal also includes various provisions to encourage private insurance for terrorism risks and more private capital dedicated to the market. It also recommends reforms to streamline the approval of private market multi-state terrorism policies and provide easier access to surplus lines for large commercial policyholders.
It also calls for a commission to develop a long-term pooling mechanism to further reduce the government’s role. Only if that commission comes up with a report would TRIA be extended past 2007.
Most insurance groups in Washington were either offering no comment until they could review the proposal or out of the office due to the federal holiday, Veteran’s Day.
David Winston, senior vice president for federal affairs for the National Association of Mutual Insurance Companies, said early feedback from his members companies has been positive, although there are some concerns. “This is a workable proposal,” he said.
NAMIC and other industry groups had been concerned that the committee might opt for no extension of TRIA or the extremely high deductibles as called for by Bush Administration officials. Instead, the proposal appears to maintain the federal government’s role even while setting new limits on what that role is.