Treasury Wont Be Rushed On TRIA Decision

Despite Senate committee pressure, Treasury says moredata, time needed

Washington

Time is running out for the U.S. Treasury Department to decidewhether it supports extension of the Terrorism Risk Insurance Act,several members of the Senate Banking Committee warned, but anadministration official made it clear the department won't berushed.

During a hearing last week on TRIA, both Republican andDemocratic members of the committee said the uncertainty overwhether TRIA will be extended could impede economic activity andinterfere with the insurance market. Moreover, they said, Congresswill have very little time to legislate unless Treasury makes adecision quickly.

Brian Roseboro, undersecretary for domestic finance withTreasury, was pressed repeatedly for a quick timetable for Treasuryto decide:

o Whether to extend TRIA's “make available” requirement.Insurers are required to make terrorism coverage available tocommercial policyholders through Dec. 31, 2004. However, Treasuryhas authority to extend the requirement through Dec. 31, 2005.

Whether the program itself should be extended beyond Dec. 31,2005, which would require new legislation. Treasury is required toprovide Congress with a report on the effectiveness of TRIA and onthe ability of the private market to offer terrorism insurance ifTRIA expires.

Despite being repeatedly urged to state a position on these twoissues, Mr. Roseboro said Treasury is still collecting informationand is not ready to make decisions.

Sen. Chris Dodd, D-Conn., said TRIA should have been a five-yearprogram at the outset, but the political reality of the time madethat impossible. Still, he said, TRIA has had an importantpsychological impact and injected confidence into the market.

Sen. Robert Bennett, R-Utah, said that he and Sen. Dodd arecirculating a letter among committee members that will be sent toTreasury urging it to extend TRIA. He said he still believes thatthe failure of Congress to enact TRIA quickly in the first placeprolonged the recession and contributed to the softness of therecovery. The recovery, he added, now has traction, and it would bea serious mistake if TRIA is allowed to expire.

Sen. Charles Schumer, D-N.Y., accused Treasury of having a“lackadaisical attitude” toward TRIA and said he is very concernedthat Treasury does not appear to have a “sense of alarm” over theact's extension.

Sen. Schumer said he does not understand why Treasury cannotspeed up the timetables contained in TRIA to make a decision onextending it. (TRIA sets a Sept. 1, 2004 deadline for a decision onwhether to extend the existing law and a June 30, 2005 deadline forthe report to Congress on the effectiveness of the program.)

Mr. Roseboro replied that Treasury understands that TRIA'stimetables do not match up with the realities of the insurancebusiness and will try to make adjustments to move the processalong. But in his prepared testimony, he emphasized that Treasurymust complete its ongoing data surveys to have the full andreliable information needed to make the evaluations required by thestatute.

However, one committee member Sen. Wayne Allard, R-Colo.questioned the need for the legislation and challenged theinsurance industry to disclose whether it believes TRIA should bepermanent. He said he reluctantly supported TRIA originally becauseof the extraordinary nature of the Sept. 11, 2001 attacks and hisbelief that a temporary backstop was needed. He emphasized the word“temporary,” adding that TRIA itself leaves no ambiguity about theintent of Congress that the program should be short-term.

At the time, Sen. Allard said, the insurance industry came toCongress asking for TRIA, saying it needed a temporary backstop toallow the private reinsurance market to develop. Now, he said, theindustry is coming back with the same arguments. “I'm not sure whywe should believe it this time around,” he said.

If the insurance industry views TRIA as a permanent program,such as federal flood insurance, the industry should say so andthen Congress can have an honest debate, Sen. Allard said. Once asector of business becomes dependent on a “subsidy,” he argued, itbecomes more and more difficult for the business to let go ofit.

The real debate, according to Sen. Allard, is whether TRIA willbe a permanent program or not. The insurance industry has to beclear on that point, he said.

Why No Coverage?

Why hasn't the private market responded to create terrorisminsurance capacity since passage of the Terrorism Risk InsuranceAct?

That was a key question posed by Sen. Thomas Carper, D-Del., toBrian Roseboro, undersecretary for domestic finance with the U.S.Treasury Department, during last week's Senate Banking Committeehearing on TRIA.

Based on the available evidence, Mr. Roseboro replied, thereappears to be several dynamics.

First, he said, the insurance industry has not developed theability to model terrorism risk and adequately price thecoverage.

Second, from the policyholder's perspective, there is an issueof risk perception. Some businesses, he noted, still believe thatterrorism insurance is too expensive, while those outside majormetropolitan areas may not believe they have a significantexposure.

Third, Mr. Roseboro said some may believe that help will beavailable from the government, whether or not they have insurance,in the event of another terrorist attack.

Steve Brostoff

Reproduced from National Underwriter Edition, May 21, 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.