#3: Insurers Struggle For TRIA's Extension

The House and Senate passed an extension bill on Dec. 17, with the House forced to concede most of its proposed changes in the federal reinsurance program's structure and scope.

The Senate bill that pretty much carried the day was described as "bare bones," extending a less comprehensive TRIA in the same basic format for no more than two years, with boosts in industry deductibles. The House, however, had wanted a much more ambitious program, coming up with a "silo" approach setting different deductibles according to the line of business, while adding coverage for group life and domestic terrorism.

President George W. Bush, a reluctant supporter at best for the TRIA concept, indicated a clear preference for the Senate approach. He signed the latest version approved by Congress on Dec. 22, which maintains the program's current structure, cuts back on the lines covered, increases the industry's retention and payback mandates, and limits extension to two years.

The battle for TRIA extension began the moment the controversial law was first passed three years ago. However, Congress–perhaps lulled into apathy by the fact we haven't yet suffered another 9/11-like attack–resisted taking serious action on TRIA until late this year.

Even if TRIA is extended, however, that will be no panacea for the insurance industry. Standard & Poor's Insurance Ratings Services warned in a report this month that extension "could also result in a negative outlook for the commercial sector, if coverage provided by the extended or renewed act is so diluted that it effectively removes any beneficial effect."

S&P is concerned that Congress will extend TRIA but withdraw federal reinsurance for certain lines, or raise deductibles to the point where for all but the most horrific attacks, there is effectively no government support. "We believe a fresh approach to assessing this exposure over the long term is warranted, as exposure for some companies may have already passed the threshold for excessiveness," S&P warned.

From the beginning of the year, renewing TRIA was anything but a slam dunk. Washington is disappointed a private market has yet to fully develop for terrorism coverage, but such hopes were dashed because terrorism is such an unpredictable and potentially catastrophic loss.

As bad as 9/11 was, what would the insured loss have been if other major sites beyond the World Trade Center and Pentagon had been hit? What if a nuclear device or biological weapon had been used rather than hijacked planes?

Despite these questions, all year insurers had to respond to charges that TRIA was nothing more than a government "bailout." The industry, well-connected politically with the governing party, had a hard time convincing their Republican friends on Capitol Hill that terrorism shouldn't be left to the invisible hand of the free market.

Ironically, it fell to Democrats such as Sen. Hillary Clinton, D-N.Y., to defend TRIA as a vital national security concern in helping the economy recover quickly from any future terrorist attack.

TRIA is bound to remain a huge story next year–its long-term fate tied up with the federal government's half-hearted attempt thus far to come to grips with terrorism risks.

Caption for picture from Jan. 24

Congress waited until the 11th hour to vote on whether to keep TRIA alive, but the battle is sure to continue next year for a longer-term solution for terrorism exposures.