Industry Groups Reconsider TRIA Positions

Efforts are underway to repair a rift within the property-casualty insurance industry on the basic principles that should be sought in legislation reauthorizing the Terrorism Risk Insurance Act.

Specifically, the American Insurance Association and the Coalition to Insure Against Terrorism, which drafted a joint negotiating approach, are proposing concessions that would lower the threshold level for federal government involvement in paying claims resulting from a terrorist attack.

Initially, the AIA/CIAT agreement proposed a trigger for federal aid in the event of a terrorism attack “no higher than the current $100 million, with possible special provision for small insurers.”

The Property Casualty Insurers Association of America and the National Association of Mutual Insurers Companies, concerned about the impact on small insurers, have supported lowering the trigger to $50 million or lower.

The new proposed language being put forth by AIA/CIAT is that the industry position should be an “event trigger that provides meaningful opportunity for small-company participation,” according Dennis Kelly, an AIA spokesperson.

That is likely to assuage the concerns of PCI and NAMIC, which both said the previous AIA/CIAT position on the trigger was economically unfeasible for their members. According to information provided to NU by industry sources close to the talks, however, the AIA/CIAT position on claims resulting from a chemical, nuclear, biological and radiological attack in proposed TRIA renewal legislation still could make smaller insurers represented by PCI and NAMIC uncomfortable.

That's because the AIA/CIAT approach on CNBR is still likely to imply industry support for legislation that would require insurers to “make available” insurance to cover CNBR risks, the sources said.

The initial rift between the groups developed when, without the knowledge of trade groups representing smaller insurers, the AIA and CIAT unveiled their agreement on the eve of a hearing held April 24 on the issue by the Capital Markets Subcommittee of the House Financial Services Committee. The subcommittee leader had asked the trade to submit concrete views on what they wanted in a renewed TRIA.

The Financial Services Committee wants to move promptly to get a bill through the committee and then through the House.

The current bill expires Dec. 31, and the Democratic leadership in both the House and the Senate has vowed to both extend and expand the current provisions in TRIA. Republicans in Congress, however, are much more reluctant to extend and expand the bill, and the Bush administration is also opposed, although it is unlikely to veto any legislation that is finally hammered out by Congress, according to lobbyists and congressional staffers.

PCI and NAMIC responded to the initial AIA/CIAT position by firing off a letter complaining that the AIA/CIAT agreement went against a commitment by all p-c industry groups to present a joint position on negotiating principles in a renewed TRIA bill.

Another hurdle to industry agreement centers on insurer retentions of terror losses.

The original AIA/CIAT agreement called for all property insurers to sell insurance for terror attacks–the so-called “make available” provision–with the federal government stepping in to cover losses only above a certain amount.

In a letter to AIA last week, PCI and NAMIC said the language of the AIA/CIAT agreement appeared to accept the current retention level–20 percent–”as a permanent feature of the program without considering the consumer benefits of lower retentions.”

PCI/NAMIC said in its letter that “lowering insurer retentions below the current 20 percent is very important to the medium-sized and smaller insurers.”

A PCI official said Wednesday that the trade group would have no comment on the compromise language being circulated by AIA/CIAT, saying the ball is “in the AIA's court.”

AIA's Mr. Kelly confirmed that talks were continuing. He contended there were “very little differences” between the AIA/CIAT position and that of PCI/NAMIC.

“What has come out of talks since we released the principles is that the language related to the trigger provisions is stronger,” Mr. Kelly said, confirming the “language was strengthened to call for an event-trigger that 'provides meaningful opportunity for small-company participation.'”

“That means we want anything done to lower the trigger,” he said.

He also contended that the wording is “recommended principles.”

“There is nothing set here in stone,” he said.