House Ready For TRIA Vote



The House Republican leadership has arranged for a Dec. 7 vote on a bipartisan House version of legislation extending the federal backstop for terrorism insurance, industry lobbyists and congressional staff announced.

The way was cleared for an extension of the Terrorism Risk Insurance Act under expedited procedures after the leadership reached an agreement under which Judiciary Committee Chairman James Sensenbrenner waived jurisdiction on the bill.

Late last week, Judiciary Committee officials said that the committee had been granted a sequential referral on the innovative legislation extending the TRIA program passed by the House Financial Services Committee Nov. 17 by a 64-3 vote.

But Peggy Peterson, a spokesman for Rep. Mike Oxley, R-Ohio, chairman of the Financial Services Committee, confirmed an agreement had been reached and floor action is pending.

“The agreement paves the way for prompt House floor action,” Ms. Peterson said. “Rep. Oxley is excited about the prospect of prompt action, and is confident the Congress will extend TRIA before it expires Dec. 31.”

“Obviously, getting House floor action is a big step forward,” Ms. Peterson added.

A strong House vote in favor of the bill would set the stage for a reconciliation process with a more bare-bones Senate bill before Congress adjourns for the year. The target date for adjournment is Dec. 17.

The decision to clear the bill for floor action comes as pressure on Congress from the business community continues to grow.

On Dec. 5, the Financial Services Roundtable, a group made up of insurance, banking and investment company executives sent a letter to House Speaker Dennis Hastert, R-Ill. and Minority Leader Nancy Pelosi, D-Calif. urging passage of the measure.

Over the weekend the TRIA subgroup of the American Academy of Actuaries issued a statement concluding that the “magnitude of potential insurance claims due to terrorist events makes permanent federal legislation necessary in order to make terrorism coverage widely and readily available.”

The subgroup based its conclusion on its analysis of the potential impact of terrorist attacks and “how an insurer may react to a sudden change in its perceived exposure to catastrophes.”

It was anticipated that had the bill been given over to the Judiciary Committee for further review, tort reforms limiting liability in cases of terrorism might have been added. Such provisions would have likely killed the bill because Democrats, especially in the Senate, would have opposed any such liability limits.

Steve Adamske, a spokesman for Rep. Barney Frank, R-Mass., ranking minority member of the House Financial Services Committee, said Rep. Frank had not seen the wording of the final agreement yet, but “we want to move this along as fast as we can and get this reauthorized as soon as possible.”

The House bill differs in a number of respects from its Senate counterpart.

o The House bill covers more lines of business than the bare-bones Senate bill.

o It puts the government on the hook to come up with more money based on the ability of the industry to get reinsurance.

o It provides more protection to smaller insurers against insolvency in the case of a large event.

o The House bill establishes a roadmap for ongoing government involvement in terrorism risk insurance, whereas the Senate bill ends federal involvement when the bill sunsets on Dec. 31, 2007.

o The House bill also adds coverage for group life insurance, which was not covered in the original bill, passed in November 2002. Under the bill, life insurers would have to retain the first 21.5 percent of loss on group life policies in 2006 and 24 percent in 2007.

The House bill includes a number of provisions opposed by President George W. Bush. Indeed, talking points distributed by Treasury officials at a Nov. 30 “retreat” for the House Republican leadership argued that the “current House TRIA extension bill contains fundamental flaws.”

For example, the paper says the House bill, by removing company deductibles and creating separate silo deductibles for different lines of coverage, “adds significant lines and exposure” and “presents gaming opportunities for multi-line providers,” citing AIG and The Hartford.

“Essentially,” the White House paper said, “the House proposal expands the program by creating several ‘mini-TRIAs’–a Workers’ Compensation TRIA, a Property TRIA, a Casualty TRIA, a new Group Life TRIA, and a new NBCR [nuclear, biological, chemical, radioactive] TRIA.”

Another potential objection to the House bill is its inclusion of domestic terrorism, which the current program does not cover. The talking points assert that “the market for domestic terrorism insurance is functioning well without TRIA assistance. There appears to be no policy reason to add it into the program and this is another unwarranted expansion of the program.”

Christopher B. Kende, with Cozen, O’Connor in New York–an insurance lawyer for 25 years and an adviser to numerous clients on terrorism coverage and political risk insurance–agrees with White House concerns over the House bill’s addition of domestic terrorism coverage, calling the language “troublesome.” He said the definition of domestic terrorism is “incredibly broad,” giving the secretary of state “absolute discretion and no guidelines as to how to certify a terrorist attack.”

Mr. Kende explained that this is a problem for insurers “because most standard property insurance contracts exclude civil commotion, civil unrest or a riot.” Under this provision, “a victim could argue that an anti-Iraq war demonstration is a terrorist act,” he said. “It needs clarification because it makes the insurance community offer cover for all kinds of domestic risk of loss normally excluded from coverage.”