While the extension of the Terrorism Risk Insurance Act appearsto have significant support on Capitol Hill, a House FinancialServices Subcommittee hearing last week revealed there is stillconsiderable debate ahead over how long the federal reinsuranceprogram should last.

Rep. Paul Kanjorski, D-Pa., who chairs the Subcommittee onCapital Markets, Insurance and Government Sponsored Enterprise,acknowledged a strong need to extend TRIA beyond its currentdeadline at year's end.

However, he also said lawmakers should recognize the “delicatebalance” between providing security to the market and spurringprivate insurers to write the exposure. Along those lines, heproposed extending the program for six-to-eight years.

Other members of the panel believed TRIA should be extended fora longer period. Rep. Gary Ackerman, D-N.Y., was among those inthat camp, arguing that an extension of less than 15-to-20 yearswould be “insufficient.”

If the committee were to approve Rep. Kanjorksi's proposal, hesaid, the shorter extension would “almost certainly be compromised”as the House negotiated a final bill with the Senate.

Other lawmakers, including Rep. Gregory Meeks, D-N.Y., said anyextension should run for 10 years, although he added that “15 wouldbe better.”

Outside of the hearing, the American Insurance Association andthe Property Casualty Insurers Association of America split overhow an extended TRIA should be structured, with the impact on smallinsurers at the heart of the dispute. (See related story, page7.)

But representatives of AIA and PCI were united in seeking a moredistant sunset provision, responding to a question from Rep.Carolyn Maloney, D-N.Y., that any extension should last at least adecade.

Joseph Ditchman, appearing on behalf of the Coalition to InsureAgainst Terrorism, said it would be “wonderful” to have anindefinite extension, and called for continuing the program for atleast 15 years.

But Rep. Kanjorksi balked at the idea of such a long extension,arguing that, given the likelihood that no current members of thecommittee would still be in office so far in the future, the“institutional memory” of the issues surrounding terrorism riskwould be lost, and future lawmakers would effectively be startingback at square one.

Additionally, Rep. Kanjorski said that, under his more modestproposal, extension legislation would also call for an in-depthstudy of terrorism risk issues and the market itself, which wouldtake as long as three years to complete.

Rep. Scott Garrett, R-N.J., also cautioned against a lengthyextension, arguing that lawmakers were able to successfullydecrease the government's exposure in the last TRIA extension,which was passed in the waning days of 2005.

A longer-term extension, he said, would take away thecommittee's ability to conduct “periodic assessments” of marketconditions for terrorism risk, and the private sector would “losethe incentive” to develop its own mechanism to handle thoserisks.

The issue, industry witnesses said, is that while the governmentwould like the private market to develop its own mechanism fordealing with terrorism risk, it does not appear that will everhappen. “I don't see anything on the horizon,” said Brian Dowd,chief executive officer for ACE North America, appearing on behalfof AIA.

Vincent Donnelly, president and CEO of PMA Insurance Group,appearing on behalf of PCI, said that while Congress needs toestablish a long-term extension, it should also change TRIA toensure that small and medium-sized companies can participate bylowering trigger levels as well as company co-payments anddeductibles.

Already, he said, the current program's trigger level of $100million exceeds the total capital of many smaller and medium-sizedcompanies. “In effect, TRIA provides no protection” for thesecompanies, he said.

All witnesses called for the government to take on more of theexposure from an attack involving chemical, nuclear, biological orradiological weapons. “Insurers have almost no ability to spreadCNBR terrorism risk to reinsurers or the capital markets,” Mr. Dowdsaid.

“While reinsurance for conventional terrorism losses remainsscarce, the situation is far worse for CNBR terrorism risk,” headded. “A large-scale CNBR event could result in losses that wouldoverwhelm an insurer's capital and surplus, and therefore itsclaims-paying ability.”

Moreover, he said, “a widespread CNBR event could paralyze theeconomy and shut down sources of outside capital that insurersmight otherwise access to pay claims.”

CIAT's Mr. Ditchman testified that because of the difficulty inmodeling for CNBR events, and the losses they would incur, suchrisks “belong in the hands of the federal government.”

Meanwhile, Janice Abraham, president and CEO of United EducatorsInsurance, called on lawmakers to expand the federal Liability RiskRetention Act to allow risk retention groups to offer propertycoverage, which would be reinsured by TRIA.

“The ability to expand into property insurance–using theprinciples of member-owned-and-controlled risk management, broadcoverage, stable pricing and coordinated claims services–would helpfill a significant need of educational institutions,” she said inher testimony.

Moreover, she added, it “will allow businesses and nonprofitswith a federal government terrorism backstop to add much-neededcapacity and competitiveness to the terrorism insurance market formany years into the future.”

RRGs, noted Ms. Abraham, provide coverage for some of the mostdifficult risks, including such areas as sports injuries, tenuredisputes and sexual molestation cases.

Her own United Educators RRG, she added, provides coverage tomany major universities, which she said are especially vulnerableto terrorism attacks given that they host large crowds duringsporting events and also conduct much of the nation's scientificresearch.

None of the other witnesses on the panel expressed any concernsabout expanding the ability of RRGs to offer property coverage, butRep. Kanjorski announced his “considerable skepticism” about theissue.

He said any extension bill should be kept focused on terrorismrisk alone, and should not be viewed as a “vehicle” for legislationaddressing surplus lines regulation, catastrophe insuranceproblems, or other unrelated issues.

However, the subcommittee's ranking member–Rep. Deborah Pryce,R-Ohio–defended the role of RRGs, saying they often serve as “theinsurer of last resort” for very difficult risks. That, she added,is “a category in which terrorism clearly belongs.”

One area of general agreement was the inclusion of group lifeinsurance under the TRIA umbrella. Responding to a direct questionfrom Rep. Maloney, none of the witnesses objected to extending theprogram to cover group life–and many lawmakers, including Rep.Kanjorksi, specifically endorsed the idea.