That sigh of relief you might have heard over the holidays coming from Washington was the sound of insurance industry lobbyists grateful that President George W. Bush had finally signed a bill extending the Terrorism Risk Insurance Act for two more years, just about a week before the controversial program was due to expire on Dec. 31. The question now is what to do about terrorism reinsurance beyond 2007.

Extension was no slam dunk for the industry, confronted with critics accusing insurers of seeking a “bailout,” a White House determined to downsize the government's exposure, as well as a Congress widely split on whether to simply renew the structural status quo or completely reinvent the federal reinsurance backstop.

In the end, the minimalists on the Senate side won out over those in the House seeking a more ambitious rethinking of the TRIA system, leaving the long-term future of federal involvement in the terrorism insurance market very much in doubt.

The House had pushed for an expanded TRIA program that would cover group life for the first time while also establishing “silos” that would set different industry retention levels depending on the line of coverage. The Senate, however, wanted to keep the current structure while raising the trigger and retention levels and eliminating certain coverages from the program. (For details, see the accompanying sidebar.)

The House bill, passed overwhelmingly, was dead on arrival as far as the Senate was concerned. Indeed, no formal conference committee was ever convened, as is normally done to iron out differences between bills–one telling indication that the Senate was in no mood to compromise on its bare-bones extension approach.

With expiration looming, and with Congress eager to break for the holidays after partisan battles over higher-profile bills–such as extension of the Patriot Act and oil drilling in Alaska–House members bowed to political reality and signed onto the Senate's version rather than risk seeing commercial policyholders outside of workers' compensation insureds left bare for terrorism risks.

“There is a time to fold your cards, and the time is now,” said Rep. Mike Oxley, R-Ohio, chair of the House Financial Services Committee, who had championed the House's silo approach.

“In this short-sighted legislation, we have missed a golden opportunity to frame the TRIA program more effectively and to move to a more market-based solution,” he added. “Government and the industry have made little progress since TRIA was enacted in 2002. When members, inevitably, are asked again to renew this 'temporary' program, they will correctly conclude that in 2005 the can was simply kicked down the road without any real reform.”

Rep. Barney Frank, D-Mass., ranking minority member of the House Financial Services Committee, voiced frustration about how lack of time as well as opposition from conservative Senators and the White House had forced the House to accept the Senate's version to get something on the books before TRIA expired on Dec. 31.

“There is more democracy in Iraq the last few days, under American leadership,” Rep. Frank observed, “than there is in the U.S. Congress under a government where the Republicans control the House, the Senate and the executive branch.”

Donald Light, senior insurance analyst at Boston-based research and consulting company Celent, lamented that the final bill did not include a bipartisan commission to explore a permanent terrorism coverage plan, substituting a White House panel that in all probability will be less than open-minded about establishing any long-term federal backstop.

“Only a cynic would say that Congress prefers having the insurance industry coming back to it every few years to renew a mutually beneficial relationship,” he said.

Chris Kende, a lawyer with insurance and reinsurance industry clients at Cozen, a New York law firm, said the two-year extension “is a band-aid…designed to prolong the program in the short-term and deep-six the program in two years.”

Problems in developing a purely private market for terrorism exposures won't go away in two years, Mr. Kende added. “The inability of the private sector to absorb a catastrophic terrorist event remains,” he warned. “Unless there is a continued effort by the private sector, industry and legislators, the [TRIA] program will disappear in two years and catastrophic terrorism risk will be uninsurable.”

In the Senate, there was relief when the final bill was passed by unanimous consent. “At long last builders and insurers of major projects in large cities, particularly New York, can breathe a sigh of relief,” said Sen. Charles Schumer, D-N.Y. “Terrorism insurance will be renewed.”

The Treasury Department, speaking on behalf of the Bush administration–which fought to keep any federal terrorism insurance program short-term and pushed hard for the Senate's limited TRIA extension–was clearly pleased.

“Congress has agreed on legislative language that meets the critical goals set out by Secretary [John] Snow when he delivered the Treasury's TRIA report in June,” said Treasury Undersecretary Randal Quarles in a statement, citing “a significantly reduced TRIA program, more room for private-sector innovation, greater protections for the taxpayer, and recognition of the temporary nature of the program.”

“Many thought these goals were not achievable when this debate began, but the House and Senate worked constructively to achieve this outcome, and we think the American taxpayer can be satisfied with the result,” he added.

Critics of TRIA were pleased that if the program wasn't left to expire, at least it wasn't expanded and kept on a short timetable. “The Senate bill sponsors and Treasury Department fought off fierce efforts by insurance lobbyists to actually increase taxpayer payments and industry subsidies and weaken consumer protections,” according to J. Robert Hunter, director of insurance for the Consumer Federation of America.

Industry officials were relieved that TRIA was extended, while making it clear much work remains to be done to craft a longer-term solution.

“This bill won't make terrorism risk disappear or make it any easier to insure without the participation of the federal government,” said Joseph Annotti, senior vice president at the Property Casualty Insurers Association of America. However, he was quick to add, “this extension gives us some breathing room that allows us to keep making this coverage available while we continue to work on a long-term, market-driven solution.” He predicted that even though Congress just enacted a two-year extension, TRIA's future will be back on the congressional agenda in the second half of 2006.

Part of the final TRIA extension bill was the creation of a President's Working Group to address coverage challenges. However, some are concerned that given President Bush's disdain for any long-term federal involvement, the deck might be stacked against any permanent federal role in terrorism insurance.

Dennis Kelly, director of federal media relations at the American Insurance Association, said the working group will be one of the industry's top legislative agenda items this year. The group will analyze market conditions for terrorism insurance in consultation with the National Association of Insurance Commissioners, representatives of the insurance and securities industries, and corporate buyers.

“We're looking forward to engaging the President's Working Group as soon as possible,” he said. “The problem has not been solved for the long term. As far as we are concerned, there should be a continuing federal role in dealing with catastrophic terrorism, especially when it comes to nuclear, chemical, biological and radiation events. Catastrophic terrorism remains uninsurable by the private market.”

However, the Council of Insurance Agents and Brokers, in a bulletin to its members, cited “fear that this forum may simply restate the disappointing June report of the Treasury Department, which argued that TRIA has been 'crowding out' marketplace innovation.”

Special Reports /

Feds Extend TRIA For Two Years, But Long-Term Future Remains In Doubt

Related Stories

Recommended For You