Senate Panel Releases Compromise Terrorism Insurance Bill

October 17, 2007

Senate leaders have agreed on a bill to renew the federal terrorism reinsurance program, although without some of the added provisions and for not as long as the House of Representatives wants.

The Senate Banking Committee, chaired by Sen. Chris Dodd, D-Conn., is scheduled to release and vote out its bill — called the Terrorism Risk Insurance Program Reauthorization Act of 2007 — today.

The current federal terrorism reinsurance program commonly known as the Terrorism Risk Insurance Act (TRIA) is scheduled to expire at the end of the year.

The Senate version would renew TRIA for seven years or until 2014, compared to 15 years in the House version.

Both bills would eliminate the distinction between domestic and foreign terrorism.

However, the Senate version does not contain other features that the House wants, including a provision mandating that insurers make available coverage for nuclear, biological, chemical and radioactive (NBCR) attacks. Instead of including NBCR coverage as the House version does, the Senate bill provides for a study of the insurance challenges posed NBCR threats.

The Senate version also does not incorporate group life insurance or the lower retentions and deductibles the House supported. The Senate wants the government program to trigger after $100 million in losses, whereas the House sets the trigger at $50 million.

Dodd worked out the compromise with Sen. Richard Shelby, R-Ala., the ranking Republican on the committee who has in the past opposed TRIA.

The White House had threatened to veto the House version. It opposes any expansion of the program.

After the Senate acts on the Dodd-Shelby compromise, there will need to be some type of negotiations or a Senate and House conference including by Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, to forge another compromise.

Dodd’s committee is also scheduled to mark-up legislation to modernize the federal flood insurance program today. The House has already offered its flood bill, one that includes adding optional windstorm coverage to the program.

While the battle to renew TRIA is not over, the news of the Senate action was being met positively by insurers and agents, even though some in the industry would like to see some of the House provisions survive.

The Property Casualty Insurers Association of America, while it supports a longer term and a lower event trigger, said it is supporting the Senate proposal as a whole.

“We are pleased with the language in the Senate TRIA bill,” said Ben McKay, PCI’s senior vice president, federal government relations. “We have strongly opposed inclusion of mandatory make-available provisions for NBCR attacks because such a requirement is the most significant threat to a healthy TRIA program. This kind of mandate would reduce the number of consumers who purchase any type of terrorism insurance, creating negative consequences for the business community and the nation’s economy. Additionally, a seven-year extension will allow time for a fair analysis of the potential for private sector growth in this market. Also, while we still would like to see a lower trigger to help encourage more market competition, it is significant that the bill did not increase the existing trigger level. On the whole, this bill is very positive and sends a strong signal to the building markets that terrorism insurance coverage will be available into the future and to the terrorists that they cannot determine where we will build and work.”

Marc Racicot, president of the American Insurance Association (AIA), commended Sens. Dodd and Shelby for “recognizing the importance of reauthorizing the terrorism risk insurance program. By recommending a seven-year extension, they have ensured a continued, vibrant federal program that will maintain market stability for insurers and U.S. businesses.”

He said AIA supports the Senate bill.

The National Association of Professional Insurance Agents (PIA) commended the Senate Banking Committee for the seven year extension but wants to see some of the House provisions restored in any final bill. These include the NBCR provision and the $50 million trigger.

“The lower trigger level will ensure that America’s many regional insurance companies — vital to the success of America’s insurance industry — will remain in good financial standing should terrorists again strike our homeland,” PIA National Senior Vice President Patricia A. Borowski said.

“The vote by the Senate Banking Committee demonstrates how far we’ve come in the debate over providing a terrorism insurance backstop,” Borowski said. “Congress is no longer considering short-term extensions, and those who oppose TRIA as unnecessary are now decidedly in the minority. It’s now up to the full Senate and the conferees to continue to craft legislation that makes TRIA everything it needs to be.”

Members of the Risk and Insurance Management Society (RIMS) visited the Capitol Hill to push for the extension of the TRIA program.
Janice Ochenkowski, RIMS president and managing director of Jones Lang LaSalle Inc., said they emphasized that the “TRIA program has been successful since its creation” and stressed the importance of its extension.

“The TRIA program has made terrorism insurance available and affordable for U.S. companies, as well as provided stability in the insurance market and national economy,” said Ochenkowski.

A recent study by RAND Corp. said that taxpayers save money and businesses are better protected with the TRIA in place than if the act is allowed to expire.

The analysis found that TRIA allows the insurance industry to play a larger role in compensating losses caused by smaller — and presumed more likely — terrorist attacks by transferring some of the risk for the largest attack to the government.

The study also says that taxpayers and policyholders could also benefit if the law were expanded to better address nuclear, chemical, biological and radiological (NCBR) attacks.

But the Bush Administration and others have argued that the federal program hinders development of the private terrorism insurance market.

The administration also opposes the bill because of the potential cost of the legislation. In 2006, the Congressional Budget Office scored the previous two-year extension of the program at a 10-year cost of $1.4 billion and has recently scored H.R. 2761 at a 10-year cost of $10.4 billion.

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