Katrina Chaos Impacts TRIA Extension Debate

Hurricane Katrina has placed in limbo the top legislative priority of the property-casualty insurance industry this fall–renewal of the Terrorism Risk Insurance Act–as Congress scrambles to respond to the hurricane's aftermath.

The first public step in a revised fall agenda for insurance in Congress will likely be a "roundtable" or "briefing" this week for members of the House Financial Services Committee. Insurance trade group officials have been alerted to have a witness available for a hearing, likely to be held on Sept. 14.

A synopsis of what insurance, banking and securities companies have done to ease the burden on consumers from the hurricane was presented last week to committee members by the Financial Services Roundtable, which includes a number of large insurers.

One lobbyist said this week's briefing–it is unclear if it will be an open meeting–will focus on the short-term needs of the industry in light of the huge potential cost of what might turn out to be the biggest insured loss ever, as well as the likely impact on the insurance market.

An immediate result of the scramble to deal with the Katrina tragedy will be a delay in the introduction of legislation extending TRIA, which expires Dec. 31. Action on a scaled-down extension of TRIA likely will be delayed until October, lobbyists say.

The delay is probably a relief, because the proposed scaled-back draft bill for extending TRIA shown to industry lobbyists had sparked talk of outright opposition by some companies and trade groups. They are complaining privately that the proposed bill, while winning support from the White House and conservatives in Congress, imposes too great a potential burden on the industry to be acceptable.

One lobbyist familiar with the House Financial Services Committee's activities said the storm and its aftermath left the issue of how to deal with TRIA fluid. "I don't think the majority staff has determined yet whether Katrina, because of its size and scope, has left the industry unable to absorb more of a market-based solution to terrorism insurance," he said.

Committee Democrats, for their part, have made it clear that a clean extension of TRIA for the longest possible time is their favored solution. Emboldened by President Bush's perceived weakness, especially by the criticism over the government's slow response to Katrina, Democrats are seen as likely to complain long and loud if the majority decides to cut back the existing program too much.

"It is clear that Katrina showed a need for preparedness in handling catastrophes, whether stemming from natural disasters or terrorism," one lobbyist said. "In that sense, Katrina could serve to make the case for extension of TRIA in its present form."

That is the industry's hope. Its focus will be on retaining as much of the current terrorism reinsurance backstop as it can.

Ernst Csiszar, president and CEO of the Property Casualty Insurers Association of America, said the Katrina aftermath clearly shows "we need an overall discussion of all issues related to terrorism, hurricanes, major earthquakes and major fires. Hurricane Katrina just points to the fact that we need to be prepared for these in advance." However, he added, "right now, TRIA is TRIA. It is set to expire Dec. 31. That's a real deadline. Let's get TRIA renewed in some form."

"The need for an integrated approach to major catastrophes is a discussion that must take place over the following 18 months," he said, noting Katrina revealed "a patchwork of coverages. I can't think of any major area in the U.S that doesn't have exposure to a potential catastrophe. That is why a more integrated approach is required."

Likely to fall by the wayside because of the preoccupation with Katrina and TRIA extension is any action on regulatory reform, industry officials say privately. One industry lobbyist called the proposed State Modernization and Regulatory Transparency Act "dead for the year. Maybe we get a hearing, maybe a bill introduction, but that's it."

The primary House TRIA proposal calls for extension for no more than two years, and with far higher deductibles, retention levels and triggers. Of equal concern, the proposal calls for adding group life and deleting some p-c coverages, such as commercial auto and general liability.

Alluding to the industry's disappointment with the TRIA draft coming out of the House Financial Services Committee, David Winston, top Washington lobbyist for the National Association of Mutual Insurance Companies, said NAMIC "would be supportive of a short-term extension that contains some reasonable modifications to the existing program to decrease government involvement and taxpayer exposure."

Julie Rochman, a representative for the American Insurance Association, said, "I don't think people should assume there will be drastic cuts in the scope of the program," adding there are "perfectly good reasons the lines in the program are in there to begin with." She said if lines are removed, "that will be a very bad public policy decision."

Quotebox with Csiszar mug:

"We need an overall discussion of all issues related to terrorism, hurricanes, major earthquakes and major fires. Hurricane Katrina just points to the fact that we need to be prepared for these in advance."

Ernst Csiszar, President & CEO

PCI