The Republican majority of the House Financial Services Committee won't support a simple extension of the Terrorism Risk Insurance Act, and is instead drafting proposals calling for far less of a federal backstop.
The leadership of the committee is acting in the face of adamant opposition from House Majority Leader Rep. Tom DeLay, R-Tex., and the Bush administration.
In the face of that, committee staff of the House Financial Services Committee will outline to lobbyists next week two alternative proposals, a source close to the committee said late today.
On instructions from Reps. Mike Oxley, R-Ohio, chairman of the committee, and Richard Baker, R-La., chairman of the Capital Markets Subcommittee, the committee staff is preparing two legislative approaches, sources said. One would be entirely consistent with the Treasury proposals (high deductibles, would phase out quickly, and would scale back the scope of the program), and the other is a pooling proposal that might constitute a "permanent fix."
This means that any effort to simply extend the current law to permit a more permanent approach to be developed next year is unlikely to get through the House even though it is the method preferred by committee Democrats.
Such legislation has already been introduced in the Senate by Sens. Robert Bennett, R-Utah, and Chris Dodd, D-Conn. It calls for a simple extension of the current program.
One House proposal will call for extension of the current program over two years with far higher deductibles, retention levels and even triggers. However, that approach will call for the government to end its backstop after the new program expires Dec. 31, 2007.
One suggestion that disappoints insurers calls for a two-year extension of TRIA with a first-year deductible of 20 percent and a second-year deductible of 25 percent. It would embrace the Treasury proposal for a $500 million event trigger as opposed to the current event trigger of $5 million, and an industry retention rising from the current 10 percent to 20 percent.
The second proposal calls for creating industry pools funded by individual companies, perhaps on the basis of net written premiums, with the federal government providing a backstop that would gradually end as the funds in the pools grow.
This program would be based on current laws dealing with reinsurance to provide an incentive for companies to build up reserves.
"The committee staff is operating under a two-track approach, planning to introduce both bills to committee members when they return in September to see which proposal gains the most traction," according to industry sources who asked for anonymity out of concern their comments might damage a relationship with legislators.
Under the pooling program, companies would also have an option to create a second pool that could be used to pay their deductible in case of an attack, a source said.
The latter approach would provide for a program based on the current TRIA legislation for perhaps a year so the contributions to the pools could provide seed money. This program was first suggested by the Property Casualty Insurers of America in a June white paper.
A third approach suggested by one large insurer that calls for a $25 billion trigger has been rejected by the majority staff of the House Financial Services Committee as politically unrealistic, a source representing a small insurance company said, because it would wipe out many small insurers through even a moderate tragedy.
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