While voicing “skepticism” over the utility of the Terrorism Risk Insurance Act (TRIA), the Consumer Federation of America voiced measured support for Senate legislation that would extend the program for another seven years.
It lauded provisions of the legislation which phases in a one-third increase in the co-pay of insurers over five years: the so-called “skin in the game.”
“While CFA believes that this federal backstop should be reduced even more aggressively, we commend the bipartisan sponsors of this legislation,” the CFA statement says. “We urge the House to take up a similar and even stronger approach and address the inefficiencies and unwarranted subsidies of the current system.”
In response, the American Insurance Association (AIA) issued a statement contending that terrorism “remains a unique and uninsurable risk that can only be covered through the public-private partnership offered by TRIA.”
The comment by Wil Rijksen, an AIA spokesman says, “As a matter of fact, the President’s Working Group confirmed in its 2014 report that the private market alone does not have the capacity to provide the levels of terrorism risk coverage currently produced under TRIA.
“We continue to caution against any changes to TRIA that would adversely impact market capacity and undermine the program.
“The partnership created by TRIA has enabled a private market to exist that has provided the certainty and capacity needed while also protecting taxpayer interests.”
The CFA policy statement was released amidst the background of several developments regarding TRIA.
A policy brief by the non-partisan RAND Corp. says expiration of TRIA would have a dire impact on the workers’ compensation market because state WC laws “rigidly define the terms of coverage, such that in a post-TRIA world insurance companies would limit their terrorism risk exposure by declining coverage to employers facing high terrorism risk.”
The report goes on to say that because WC coverage is mandatory for nearly all U.S. employers, employers that cannot purchase coverage would be forced to obtain coverage in markets of last resort.
“Migration of terrorism risk to these markets of last resort would increase the likelihood that WC losses from a catastrophic terror attack would largely be financed by businesses and taxpayers throughout the state in which the attack occurs, adding to the challenge of rebuilding in that state,” the report says.
“TRIA, in contrast, spreads such risk across the country,” the report notes.
Officials of the Property Casualty Insurers Association of America and the AIA say the report buttresses their view that TRIA must be renewed.
Officials of the Coalition to Insure Against Terrorism (CIAT), which represents insureds, especially owners of commercial property such as offices and apartments, also say that the report confirms the importance of TRIA renewal.
Currently, Senate Banking Committee staffers are telling industry officials they will take up their bipartisan legislation reauthorizing TRIA, S. 2244 as soon as work is completed on legislation reforming Fannie and Freddie, “but the industry is concerned about slippage,” according to the consensus of industry lobbyists. That legislation, sponsored by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, the chairman and ranking minority members of the panel, will take place Thursday. It is expected to be reported out by the minimum 12 votes and go nowhere.
In the House, a leaked document outlining principles for reauthorization that would effectively seek to phase it out after three years except for nuclear, biological, chemical radiation (NCBR) events. The leadership of the House Financial Services Committee says it hopes to have a draft version of the bill available within two weeks.
The House draft, called the Terrorism Risk Insurance Modernization Act (TRIM), is stirring deep concern among insurers and insureds because it reportedly has the support of the House Republican leadership.
As for the CFA, it says it supports the Senate version of reauthorization despite the fact it harbors “great skepticism” about whether a terrorism risk insurance program is warranted.
The CFA concern is based on its core belief that P&C insurers can afford to insure these risks without TRIA because “the industry is overcapitalized.” The CFA report says the current P&C industry surplus is $653 billion, “dwarfing the $24 billion, in 2014 prices, of after-tax insurer losses from 9/11.”
The CFA contends a “safe” industry leverage ratio (net earned premiums divided by surplus) is considered to be 150% or less “but is at an ultra-safe 74% today.”
It argues that over time, Congress should consider replacing TRIA with a subsidy to commercial insureds who would most certainly be charged higher insurance rates.
The CFA says its alternative in a perfect world to TRIA would include a provision mandating that the Federal Insurance Office monitor any price increases “and report back to Congress on increases that are exorbitant and damaging.”
Congress, CFA argues, “would then have specific information allowing it to craft a more targeted and appropriate risk-based program to provide assistance if it so chose.”