Senate, House Panels Both Advance Terrorism Insurance Bills

November 16, 2005

The Senate Banking Committee and House Financial Services Committee each marked up legislation Wednesday to extend the Terrorism Risk Insurance Act (TRIA) for two years.

The Senate Banking Committee reported out S. 467 by voice vote. The House Financial Services Committee approved H.R. 4314, the Terrorism Risk Insurance Act of 2005, by a 64-3 margin.

TRIA was originally enacted into law after the September 11 terrorist attacks to provide a federal reinsurance backstop. It expires on Dec. 31, 2005.

Its extension beyond the end of the year is a top federal legislative priority for the the industry.

The American Insurance Association and Property Casualty Insurers of America applauded the legislative progress of both committees and urged prompt floor votes but neither association immediately indicated a preference for one version over the other.

“Because time is short, we look forward to Senate and House leaders continuing the momentum established today by quickly bringing the bills up for floor votes,” said Leigh Ann Pusey, AIA senior vice president, government affairs.

PCI President and CEO Ernie Csiszar praised both measures. “S. 467 and H.R. 4314 are good, common sense compromises that will ensure the continued vitality of our nation’s economy, while giving insurers a definitive time frame to develop a long-term solution to this ongoing problem,” he said.

The applause from the National Association of Mutual Insurance Companies, however, was loudest for the banking committee version.

“NAMIC supports the Terrorism Risk Insurance Extension Act of 2005 as reported by the Senate Banking Committee this morning and urges its swift passage on the Senate floor,” said David A. Winston, NAMIC federal affairs senior vice president.

Winston also argued that other proposals to raise the program’s trigger point for covered events from $5 million to $500 million, and then to raise the deductibles from 15 percent to 20 percent in the next two years “would effectively drive out as much as 81 percent of the private insurance market.”

“Without reasonable figures, given the near impossibility of purchasing reinsurance, small companies would be forced to take on an amount of risk that would violate their fiduciary obligation to their policyholders and their responsibilities under state law,” wrote Winston. “A smaller private insurance market, in turn, would further expose the federal government to greater costs in the event of another attack.”

In comparing the two bills, Winston pointed out three key areas. The Senate bill terminates the TRIA program on Dec. 31, 2007, whereas the House bill contemplates either a pooling mechanism or an extension of TRIA with a scheduled increase in deductibles.

The increased event trigger levels are the same: $50 million in 2006 and $100 million in 2007.

The House bill expands lines of coverage to include nuclear, biological, chemical, and radiological (NCBR) weapons and group life whereas the Senate bill diminishes TRIA coverage, including in the area of farm owners multi-peril which would affect NAMIC’s farm mutual member companies.

The deductibles in the Senate version are lower and across the board as contrasted with the individual coverages “silo” approach taken by the House version with different deductibles per line of coverage.

Under the existing TRIA program, the government would provide reinsurance for 90 percent of losses, to a cap of $100 billion, on events that cause total damage exceeding 15 percent of the entire industry’s prior-year commercial property and casualty direct earned premiums. If a terrorist attack fails to exceed the industrywide retention, the government will provide “temporary liquidity” for events that exceed $5 million in insured damage to those companies with losses that exceed 15 percent of their prior year’s direct earned premiums, and the program requires those companies to repay those funds over time.

The Senate is expected to consider its bill on the floor this week.

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