Congress Passes TRIA Extension

Rep. Oxley called the final bill "short-sighted," adding that "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 on Saturday 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."

But in the Senate, there was relief when the 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."

Senate staffers==working at the request of the White House, Sen. Richard Shelby, R-Ala., chair of the Senate Banking Committee, and Senate Majority Leader William Frist, R-Tenn.==deliberately delayed talks as long as possible to force House negotiators to accept the more modest Senate bill==which maintains the current TRIA structure, cuts down on the lines covered by the federal reinsurance backstop, raises the industry's retention and limits extension to two years.

The Senate leadership and Sen. Shelby also declined to appoint conferees to reconcile the two bills, knowing full well that Congressional rules would have given Rep. Oxley the gavel as chair of the conference committee, putting pressure on the Senate to accept provisions from the House bill–which established different "silo" retentions depending on the line of business, while expanding coverage to include domestic terrorism and group life insurance.

One substantive change from the original Senate bill is an extension of the program's current $5 million coverage trigger through March 31, 2006. The trigger then effectively rises to $50 million for the rest of 2006 and $100 million in 2007.

Another change will be a provision increasing the payback insurers must make for any federal aid provided due to a terrorism attack. Under the final version of the bill the industry in 2006 will have to repay $25 billion, compared to $17.5 billion in the original Senate legislation. That number rises to $27.5 billion in 2007.

The legislation will extend TRIA for two years, until Dec. 31, 2007, and scale back the scope of its coverage. Commercial auto, burglary/theft, surety, professional liability, and farmowners multiple-peril will no longer be covered. The negotiators did agree to include general liability, which was left out of the original Senate bill, but group life was not included.

In addition, coverage for nuclear, chemical, biological and radiation attacks in property and liability policies–included in the House bill and opposed by the insurance industry–did not make it to the final version passed by Congress.

Meanwhile, the industry's "deductible," or retention level, will rise from the current 15 percent to 17.5 percent next year, and 20 percent in 2007.

A "President's Working Group" will be appointed to review how the program functions and make potential recommendations for further developments in terrorism coverage. ("We 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," the Council of Insurance Agents and Brokers noted in a bulletin to its members.)

The final bill was a victory for Sen. Shelby and the White House, because it gave them the finality for the program they cherished. The CIAB memo said that Sen. Shelby "forged the basic agreement weeks ago with TRIA supporters Sens. Chris Dodd, D-Conn., and Robert Bennett, R-Utah. Sen. Shelby had opposed the passage of TRIA in 2002, and clearly wanted to scale back the scope of the program with an ultimate goal of finality in the federal component of the backstop."

The Treasury Department, speaking on behalf of the Bush Administration, was clearly pleased by the day's developments.

"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."

The American Insurance Association issued a statement after the House vote, saying the new extension bill "will keep a workable federal terrorism insurance mechanism in place for 2006 and 2007."

"This timely, decisive action taken by Congress should bring comfort to businesses all over the country that rely on insurance to protect them from the potential financial devastation that could result if they become victims of a terrorist attack," said AIA President Marc Racicot==the former governor of Montana, chairman of the Republican National Committee and head of the Bush-Cheney reelection campaign.