Congress Passes TRIA Renewal; Legislation Sent to President’s Desk

December 18, 2005

Congress approved the Terrorism Risk Insurance Revision Act of 2005 late last week after reconciling differing versions passed in both the House and the Senate. The legislation now moves to the President’s desk for his signature.

The extension of TRIA came just in time as the original terrorism insurance legislation was set to expire on Dec. 31, 2005. The bill (S. 467), which was overwhelming supported by members of both the Senate and House, will keep a federal terrorism insurance mechanism in place for 2006 and 2007.

Highlights of the legislation include:

TRIA will be extended for two more years.

Coverage will be somewhat scaled back. Commercial auto, burglary/theft, surety and professional liability will no longer be covered.

Nuclear,chemical, biological and radiological (NCBR) coverage will not be required in property and liability policies.

The industry’s deductible will increase:
2005 – 15 percent
2006 – 17.5 percent
2007 – 20 percent

The event trigger will increase:
2005 – $5 million in insured losses
2006 – $50 million in insured losses
2007 – $100 million in insured losses

The legislation provides for a “President’s Working Group” to be appointed to review the effectiveness of the program and make recommendations for improvement. That replaced a provision preferred by the insurance industry that would have established a public-private commission to develop long-term solutions.

Insurance groups welcomed passage even though disappointed that the long-term solution commission and other provisions were left out. Rep. Michael Oxley, who chairs the House Financial Services Committee, also expressed disapointment with the final version.

“This timely, decisive action taken by Congress should bring comfort to businesses all over the country that rely on insurance to protect them from the potential financial devastation that could result if they become victims of a terrorist attack,” said Marc Racicot, president of the American Insurance Association.

Racicot said that Senate and House members demonstrated their understanding of the urgency of getting this legislation to the President before the current Terrorism Risk Insurance Act of 2002 (TRIA) expires December 31, Racicot stated. “We appreciate that Congress recognized how essential enactment of this bill is to our nation’s economic vitality. However, it only will keep this safety net in place for commercial policyholders over the next two years, even though the risk of a terrorist attack on our shores will be with us for years to come.”

Racicot concluded by saying that “lawmakers will now need to focus, with the same urgency, diligence and bipartisan cooperation, on finding a long-term solution to insuring America against the ongoing economic threat of terrorism. We stand ready to assist them with that effort every step of the way.”

“NAMIC is gratified that the extension is now on its way to the President,” said Charles M. Chamness, president/CEO of the National Association of Mutual Insurance Companies.

The new version of TRIA that will go before the president will no longer mandate coverage for farmowners multi-peril insurance, a position strongly advocated by NAMIC on behalf of its farm mutual insurance company members. Additionally, NCBR coverage will not be required in property and liability policies, a provision in the House-passed bill that NAMIC opposed.

On Friday, Dec. 16, Rep. Oxley criticized the final bill as “short-sighted.”

“Important reforms in the House legislation that would have helped the insurance industry to eventually assume all terrorism risk have been left behind, again at the recommendation of the Senate and the Administration. In this short-sighted legislation, we have missed a golden opportunity to frame the TRIA program more effectively and to move to a more market-based solution,” he said.

“When members, inevitably, are asked again to renew this ‘temporary’ program, they will correctly conclude that in 2005 the can was simply kicked down the road without any real reform,” Oxley said.

A provision in the House bill calling for the establishment of a public-private commission to come up with long-term solutions for insuring against terrorist attacks was stripped from the final version of the bill. Instead, a “President’s Working Group” will be appointed to make recommendations.

The Property Casualty Insurers Association of America said it will continue to work with lawmakers and the policyholder community in an effort to find long term, market based solutions to the problem of insuring against terrorism risk.

“A market-based approach means that Congress would not have to continually revisit this issue, providing the business community and the insurance industry with the certainty of financial security, which will foster job creation and economic growth,” said PCI President and CEO Ernie Csiszar. “If we are to ensure the long-term stability of our economy we need to address the long-term economic security problem that terrorism poses. While there is no ‘perfect’ solution to this complex problem, this does not mean that insurers and the federal government can’t create an effective means to protect our economy and our citizens from the financial devastation of a terrorist attack.”

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