Congress Skeptical As TRIA Expiration Looms

Congress Skeptical As TRIA Expiration Looms Insurers must overcome perception that government backstop is an industry bailout

The signing of the Terrorism Risk Insurance Act by President George W. Bush two years ago was the “Story of the Year” in NUs 2002 “Top 10″ list, but it took months of debate and passage by a conflicted, lame duck Congress to finally get the bill into law.

TRIA was designed as a temporary bridge to allow time for a private terrorism insurance market to develop, with the law scheduled to expire on Dec. 31, 2005. However, the industry contends the exposure remains too large and unpredictable for private carriers to shoulder the entire burden alone, and has been lobbying hard for an extension.

For a variety of reasons, an extension is no slam dunk. Indeed, I wouldnt be surprised if we are still talking about extension as TRIAs expiration goes down to the wire a year from now.

Even though expiration is 12 months away, the consequences of delay will be felt as soon as we ring in the new year. Any policies bound next year that come up for renewal after Dec. 31 could leave buyers bare on their terrorism exposure the moment TRIA expires.

TRIA has yet to cost taxpayers a dime, and the law still leaves insurers on the hook for many billions in claims before its federal backstop kicks in, but critics are decrying the program as a “bailout” of a deep-pocketed industry, making extension politically problematic. The fact that there has not been a major domestic terrorist incident since 9/11 has also dulled the countrys sense of urgency about the threat, leading to inertia in an already skeptical Congress.

Adding to the burden of proof on insurers is the recent broker fee and bid-rigging scandal. “Its political poison to align with the insurance industry right now,” observed Steven Dreyer, managing director and North American practice leader at Standard & Poors. Distrust will make it that much harder to convince Congress to lift a finger to help the industry, including passage of TRIA.

The key, according to industry leaders such as Ramani Ayerchairman, president and CEO of The Hartford Financial Services Groupis to emphasize the importance of TRIA extension to the economys future health. TRIA protects policyholders, not insurers, he contends, comparing the program to the Federal Deposit Insurance Corp.

Still, TRIA extension is likely to remain a hard sell on Capital Hill, and even if Congress acts, the industry might very well be called upon to shoulder a bigger portion of potential losses in the “war” on terrorism before federal reinsurance takes over in any renewed TRIA bill.

Reproduced from National Underwriter Edition, December 16, 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.