Senate Democrats expressed strong support for renewal of the Terrorism Risk Insurance Act at a Capitol Hill hearing on the issue, but concerns voiced about the program by Republicans left it unclear what a final bill will look like.
Comments were made at proceedings convened by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, regarding the need to reauthorize the TRIA extension legislation, which expires at the end of the year. Sen. Dodd indicated he wants the committee to act promptly on the bill.
As noted by Sen. Charles Schumer, D-N.Y., a strong supporter of a permanent bill, and Michael McRaith, director of the Illinois Division of Insurance, who represented the National Association of Insurance Commissioners at the hearing, insurance companies and contracts are affected already by the possible expiration of the current program.
"Terrorism insurance coverage, as companies offer it today, is typically contingent on a federal backstop, and companies again place limitations on commercial policies to exclude terrorism coverage if a federal backstop no longer exists," Mr. McRaith testified. "These limitations will greatly reduce terrorism coverage in the states that have approved them."
At the same time, insurance and policyholder representatives who testified indicated that renewal legislation must provide for coverage of chemical, nuclear, biological and radiation attacks.
Indeed, the only new development on the issue to emerge from the hearing was a concession by the Consumer Federation of America that TRIA needs to be renewed in some form. Previously, CFA officials had characterized the program as an unnecessary giveaway to the rich insurance industry that was standing in the way of creation of a private market for terrorism risk insurance.
At the hearing, however, Travis Plunkett, legislative director of the CFA, conceded it was necessary to cover chemical, nuclear, biological and radiation attacks. "As there still is very little coverage for CNBR attacks, or large-scale attacks that result in over $100 billion in losses, we urge Congress to restructure TRIA to address these real needs and leave it to the private market to cover terrorism losses of less than $100 billion."
Mr. Plunkett "urged" the panel and Congress to consider reducing the lines of coverage that receive TRIA backup right now "but could function well without government assistance."
He said the CFA also recommends that Congress "end the provision of free reinsurance to a very affluent industry by requiring insurers to pay an actuarially-based premium for whatever backup they receive."
At the hearing, Sen. Dodd reiterated his belief that the program should be made permanent.
"A more permanent federal commitment is, in my view, not only something that we should do, it is something that we must do," Sen. Dodd said.
Sen. Schumer also called for a permanent program, saying extending it temporarily "discombobulates the markets." He urged adding nuclear, biological and other types of coverage to the program.
But Sen. Richard Shelby R-Ala., ranking minority member of the committee and former chairman of the panel, disagreed.
Sen. Shelby, the banking panel's top Republican, noted that the intent was for the program to be temporary and "transitional" when it was authorized in late 2003, and that the private market could do a better job of supplying the terrorism-insurance market.
"Because the program involves a commitment by the federal government to pay for a large portion of the losses incurred by a terrorist attack, the market has significantly less incentive to create new ways to manage terrorism risks," Sen. Shelby said.
Sen. Jim Bunning, R-Ken., added that any legislation passed this year should reduce taxpayers' exposure to losses.
In his testimony on behalf of the NAIC, Mr. McRaith said private insurers have shown "little appetite" to provide terrorism coverage without a federal backstop.
"The United States economy remains vulnerable to terrorist attack and requires insurance to help manage exposure to that very real, unpredictable and volatile risk," McRaith said.
In his testimony supporting extension of the program, Charles Clarke, vice chairman of Travelers, reiterated the industry argument that terrorism remains an uninsurable risk for private sector insurers.
Mr. Clarke, who represented the American Insurance Association at the hearing, suggested approaches for "developing an effective and fiscally efficient federal program for the public-private management of terrorism risk."
His suggestions included sustaining the current extension of the original TRIA legislation for conventional terrorism risk, expanding the federal government's financial role in managing CNBR terrorism risk, and eliminating the artificial distinction between foreign and domestic terrorism.
He also called for a review of the program's current $100 million trigger to better help small and midsized insurers, and sought preemption of what he termed "burdensome" state rate and form regulation with respect to terrorism insurance rates and policy forms.
Other industry trade groups who had representatives testify in support of the extension included Reinsurance Association of America, the Independent Insurance Agents and Brokers of America, and the Council of Insurance Agents and Brokers.
Representatives of Silverstein Properties, the owner of the World Trade Center, and the Coalition to Insure Against Terrorism, whose members include industrial companies and real estate investment trusts, also testified.
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