Concerns Voiced Over TRIA Bill

Washington

Industry representatives are praising legislation introducedlast week to extend the Terrorism Risk Insurance Act, although someare voicing concerns on the details.

The legislation, H.R. 4634, would extend TRIA for two yearsuntil the end of 2007. However, it would also increase theinsurance company deductible and industry retention levels.

At a press conference, one of the primary sponsors of thelegislation, Rep. Richard Baker, R-La., said he knows that theincreased insurance industry responsibility for terrorism-relatedlosses has caused some concerns, but he and the other co-sponsorsare open to discussions with all parties.

One industry representative, who asked not to be identified,said that unfortunately, H.R. 4634 does not resolve the problem ofhigh retention levels. Even with the current $15 billion retentionlevel, this representative said, many insurance companies would notsee a dime of federal money in the event of a terrorist attack.

But despite this, he noted, the legislation would increase theretention level to $17.5 billion in 2006 and $20 billion in2007.

Hopefully, this representative said, the insurance industry canwork with Congress to address TRIA extension in a way that resolveswhat the industry sees as its many shortcomings.

At the press briefing, Rep. Baker said that Congress wants tohear from all the stakeholders. He added that he does not thinkthere will be more than one extension of TRIA.

He took issue with some critics who charge that TRIA's structureinhibits development of private sector solutions to the problem ofterrorism insurance. Rep. Baker said he certainly has not reachedthat conclusion, noting that the Treasury Department is engaged ina study to determine whether the capital markets can financeterrorism risk.

He added that terrorism insurance is vital for job creation.Many people, Rep. Baker said, have charged that the currenteconomic recovery is a “jobless” recovery. It would be “stupid” totake away a tool, TRIA, that creates new jobs, Rep. Baker said.

Rep. Pete Sessions, R-Texas, a co-sponsor of H.R. 4634, saidthat the supporters want to work with Treasury on a long-termsolution. This legislation, he said, is the starting point fordiscussions.

The goal, Rep. Sessions said, is to have another answer in placeby 2007 that is supportive of jobs and in the best interest of thecountry.

But TRIA extension, Rep. Sessions added, is urgently needed inthe marketplace. He said he wants Congress to approve an extensionbefore it adjourns for 2004.

Rep. Sue Kelly, R-N.Y., said there is no reason to delay TRIAextension. “It is better to have a program in place and not needit, than to need a program and not have it,” she said.

She noted that TRIA extension has strong bipartisan support inthe House.

Recently, she said, more than 180 House members sent a letter toTreasury Secretary John Snow urging the Bush administration tosupport extension.

That, Rep. Kelly said, is already very close to the 218 votesneeded to pass the legislation.

Rep. Eric Cantor, R-Va., said it is important to assure thatTRIA remain in place. The certainty provided by TRIA, he said, willhelp continue the economic expansion.

H.R. 4634 would extend TRIA until Dec. 31, 2007, and requireinsurance companies to make terrorism insurance coverage availablefor all the years of the program.

It would maintain the current 15 percent insurer deductible in2006, but increase it to 20 percent in 2007.

It would also increase the current $15 billion industryretention to $17.5 billion in 2006 and $20 billion in 2007.

The legislation would have Treasury issue a report on long-termsolutions for expanding the availability and affordability ofterrorism insurance without a federal backstop.

Finally, it would have Treasury make a final determination aboutincluding group life in the program.

Industry groups are praising introduction of thelegislation.

Charles E. Symington, senior vice president of federalgovernment affairs for the Alexandria, Va.-based IndependentInsurance Agents and Brokers of America, said that at this point,catastrophic losses related to terrorism are uninsurable. Thefederal backstop is necessary to preserve confidence in themarketplace, he said.

Company trade groups said they are studying the impact of theincreased deductibles and retention levels, but stressed theysupport TRIA extension.

David Winston, senior vice president of federal affairs for theIndianapolis-based National Association of Mutual InsuranceCompanies, added that there are no private market alternatives toTRIA. A two-year extension, he said, will permit Congress to assessalternatives.

Leigh Ann Pusey, senior vice president of government affairs forthe Washington-based American Insurance Association, noted thatTreasury recently extended the “make available” requirement underthe current TRIA legislation through 2005. (See relatedarticle.)

This, she said, makes the TRIA extension vital, since insurersand policyholders will be exposed during part of the coverage termthat runs beyond TRIA. “Policyholders, state insurance regulatorsand insurers understand that this potential mismatch between policyperiods and TRIA's expiration makes it absolutely critical thatCongress act this year to extend TRIA beyond Dec. 31, 2005,” Ms.Pusey said.

Anne Sittmann, a representative of the Des Plaines, Ill.-basedProperty Casualty Insurers Association of America, said PCI looksforward to working with Congress and the administration on TRIAextension.

RECAP

Provisions of H.R. 4634 include:

o Extending TRIA for two years until the end of2007.

o Raising the industry retention from thecurrent $15 billion to $17.5 billion in 2006 and $20 billion in2007.

o Raising the insurance company deductible fromthe current 15 percent to 20 percent by 2007.

The bill also calls on the Treasury Department to issue a reporton long-term private market solutions to the problem of terrorisminsurance, with the goal of eliminating the federal backstop.

Primary bill sponsors are Reps. Eric Cantor,R-Va.; Richard Baker, R-La.; Sue Kelly, R-N.Y.; and Pete Sessions,R-Texas.

Reproduced from National Underwriter Edition, June 25, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.