TRIA Set For House Action

WASHINGTON–Legislation extending the Terrorism Risk Insurance Act for 15 years and beefing up government support for insurers in the event of a major terrorist attack was cleared late yesterday for House floor action today.

The bill due before lawmakers is H.R. 2761, the “Terrorism Risk Insurance Revision and Extension Act of 2007″ (TRIREA). It was introduced June 18 by Massachusetts Democrats Rep. Barney Frank, chairman of the House Financial Services Committee, and Rep. Mike Capuano, and amended and passed by the full Financial Services Committee Aug. 2.

The bill is expected to win broad bipartisan support in the House, but the vastly expanded program as proposed under the House bill faces an uncertain future in the Senate.

One sweetener added to the bill in the Rules Committee designed to win support from smaller insurers concerned about the addition of nuclear, biological, chemical and radiation events would apply the so-called “reset” provision to NBCR coverage.

This provision makes it easier for insurers to underwrite terrorism coverage in areas hit by a previous attack–and charge lower rates than they would otherwise.

It does so by mandating that insurers get federal help sooner in the event of a subsequent attack through lower deductibles and triggers than those imposed in areas that have not been hit. Such would be the case for any “previously impacted area” designated by the Treasury.

The terrorism risk measure currently in effect sunsets Dec. 31.

Insurers have expressed concern that, because the Senate has yet to address the issue, it may be late December before final action on an extension takes place.

Lobbyists for the insurance industry say privately that Senate Banking Committee delay in dealing with the issue raises concerns that the later Congress presents a bill to the president, the greater leverage critics of the program–including the Bush administration–will have to substantially cut back on the bill the House will approve today.

The bill was originally scheduled for House Rules Committee action yesterday.

But action was delayed a day while the House Democratic leadership debated how to deal with a Sept. 6 Congressional Budget Office report on the cost of the new TRIA measure. Under House rules measures are not to be approved without funding in place.

The Budget Office estimated the program could cost $8.5 billion over 10 years–even if there is no attack (or $8.4 billion when direct spending costs are offset by government revenue increases).

The Rules Committee decided to skirt the so-called “pay-as-you-go” issue by adding a provision to the bill requiring passage of a joint resolution by Congress to permit federal compensation under theTerrorism Risk Insurance Act of 2002, the original bill.

The provision approved by the Rules Committee calls for a vote on the resolution after certification by the secretary of Treasury, in concurrence with thesecretaries of State and Homeland Security and the attorney general, that there has been an act of terrorism. The rule would be considered by Congress under fast-track procedures, under the amendment.

Only one other amendment was approved for House consideration.

That amendment, to be offered by Rep. Steve Pearce, R-N.M., would raise the deductible set at 5 percent above $1 billion by 1 percent each program year, rather than by .5 percent (one-half percent) under language currently in the bill.

The amendment appears designed to reduce Bush administration antagonism to the bill. It was approved for floor vote just one day after the Bush administration issued a statement of administration policy which said that, unless the scope of the program under the House bill was reduced, the administration would recommend that President Bush veto it.

Other modifications in the bill from the current legislation change 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 5 percent, although that would rise annually under the Pearce amendment.

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. Other provisions of the proposed legislation that improve on the current program include:

o It maintains post-event mandatory repayment amounts for property-casualty losses at $27.5 billion.

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

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

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

o It includes group life.

o It requires Treasury to issue a market condition report.

o It establishes a commission to study long-term solutions that will issue a report at five- and eight-year intervals.