Concerns Voiced Over TRIA Bill

Washington

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

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

At a press conference, one of the primary sponsors of the legislation, Rep. Richard Baker, R-La., said he knows that the increased insurance industry responsibility for terrorism-related losses has caused some concerns, but he and the other co-sponsors are 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 of high retention levels. Even with the current $15 billion retention level, this representative said, many insurance companies would not see a dime of federal money in the event of a terrorist attack.

But despite this, he noted, the legislation would increase the retention level to $17.5 billion in 2006 and $20 billion in 2007.

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

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

He took issue with some critics who charge that TRIA's structure inhibits development of private sector solutions to the problem of terrorism insurance. Rep. Baker said he certainly has not reached that conclusion, noting that the Treasury Department is engaged in a study to determine whether the capital markets can finance terrorism risk.

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

Rep. Pete Sessions, R-Texas, a co-sponsor of H.R. 4634, said that the supporters want to work with Treasury on a long-term solution. This legislation, he said, is the starting point for discussions.

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

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

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

She noted that TRIA extension has strong bipartisan support in the House.

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

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

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

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

It would maintain the current 15 percent insurer deductible in 2006, but increase it to 20 percent in 2007.

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

The legislation would have Treasury issue a report on long-term solutions for expanding the availability and affordability of terrorism insurance without a federal backstop.

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

Industry groups are praising introduction of the legislation.

Charles E. Symington, senior vice president of federal government affairs for the Alexandria, Va.-based Independent Insurance Agents and Brokers of America, said that at this point, catastrophic losses related to terrorism are uninsurable. The federal backstop is necessary to preserve confidence in the marketplace, he said.

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

David Winston, senior vice president of federal affairs for the Indianapolis-based National Association of Mutual Insurance Companies, added that there are no private market alternatives to TRIA. A two-year extension, he said, will permit Congress to assess alternatives.

Leigh Ann Pusey, senior vice president of government affairs for the Washington-based American Insurance Association, noted that Treasury recently extended the “make available” requirement under the current TRIA legislation through 2005. (See related article.)

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

Anne Sittmann, a representative of the Des Plaines, Ill.-based Property Casualty Insurers Association of America, said PCI looks forward to working with Congress and the administration on TRIA extension.

RECAP

Provisions of H.R. 4634 include:

o Extending TRIA for two years until the end of 2007.

o Raising the industry retention from the current $15 billion to $17.5 billion in 2006 and $20 billion in 2007.

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

The bill also calls on the Treasury Department to issue a report on long-term private market solutions to the problem of terrorism insurance, 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Concerns Voiced Over TRIA Bill

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