House TRIA Extension Bill Is Introduced

WASHINGTON–Legislation was introduced in the House yesterday that would extend the Terrorism Risk Insurance Act for 10 years and provide coverage for nuclear, biological, chemical and radiological coverage for the first time.

Massachusetts Democrats Rep. Barney Frank, chairman of the House Financial Services Committee, and Rep. Mike Capuano are the chief sponsors of H.R. 2761, the “Terrorism Risk Insurance Revision and Extension Act of 2007″ (TRIREA).

The legislation is expected to win strong support from large insurers and from agents.

But support from smaller insurers is problematic because they object to a provision that mandates that all insurers “make available” coverage for NBCR.

The big winners were large insurers and the Coalition to Insure Against Terrorism, a policyholder group that mainly represents large real estate interests, which joined with the American Insurance Association to support the legislation as introduced in principle.

Leigh Ann Pusey, AIA chief operating officer and senior vice president of government relations, called the bill “a positive development.” Ms. Pusey also said the legislation as introduced provided clarity and certainty on many issues dealing with how the government would pay claims stemming from a terrorist attack.

But, the Property Casualty Insurers Association of America (PCI) said that while it supports the bill, it has concerns with the NBCR provision.

Inclusion of mandatory coverage for NBCR perils “will have serious negative consequences for consumers and the nation's economy,” said Ben McKay, PCI senior vice president for federal government relations.

“We think that the NBCR issue should be addressed only after a full study of all its potential implications,” he added.

Officials of the National Association of Mutual Insurance Companies agreed.

Marliss Browder, senior federal affairs director at NAMIC, said, “While we are pleased to see the process starting to continue a federal backstop for terrorism insurance, it's imperative that small- and medium-sized insurers be afforded the opportunity to participate.

“While this legislation on one hand would encourage their participation, the inclusion of NBCR-mandatory coverage on the other hand would preclude many of them from the program,” she added, saying NAMIC would join PCI in asking Congress to create a commission to study all of the risks associated with NBCR attacks.

At the same time, the bill does add a sweetener for small insurers by reducing the level where federal aid kicks in from the current $100 million to $50 million. The bill also extends coverage to so-called “domestic events” for the first time–that is, those terrorism acts perpetrated by U.S. citizens as well as those from foreign countries.

It also provides coverage for NBCR events by reducing the deductible after which federal aid kicks in from the 20 percent in current legislation to 7.5 percent. The 20 percent threshold would be sustained throughout the 10-year period in the House version of the legislation.

The 85 percent federal/15 percent private insurer ratio for payment of claims that applies to conventional terrorist attacks is also reduced for NBCR attacks under the proposed legislation.

The bill establishes a sliding deductible for NBCR claims that reduces industry commitment to pay claims the closer the total losses near a cap on claims of $100 billion. Under the existing bill and in the proposed extension, payments beyond that would have to be appropriated by Congress.

The bill is expected to win overwhelming support in the House. But Senate support is another matter. And a strong indication of the Bush administration's stance on the legislation is expected Thursday, when a top Treasury official is due to testify before the Capital Markets Subcommittee of the House Financial Services Committee on the issue.

Other provisions of the proposed legislation:

o Maintains post-event mandatory repayment amounts for p-c losses at $27.5 billion.

o Provides legal certainty by clarifying annual cap language to ensure that the program cap takes into consideration workers' compensation and other state mandatory coverage laws.

o Includes new language to clarify that the limits of an insurer's financial exposures are confined to its applicable deductible and co-payments.

o Requires the Treasury Department to issue pro-rata allocation regulations within 120 days of enactment.

o Includes group life.

o Requires Treasury to issue a market condition report.

o Establishes a commission to study long-term solutions and will issue a report at five years and eight years.