House On Collision Course With Bush Over Extension Of Terrorism Backstop

The House of Representatives put Congress on a collision course with the White House after passing legislation last week extending the Terrorism Risk Insurance Act for another 15 years while expanding the federal backstop's coverage, despite a presidential veto threat.

The Bush administration made clear before the vote that it wants a bill far narrower in scope and of much shorter duration, or else a veto might be in the offing, setting the stage for a showdown as TRIA's expiration nears.

However, there is still time to avoid a confrontation, as the Senate has yet to act on TRIA, and industry groups–while praising the House action–vowed to seek changes in the bill's scope and execution.

The final House vote was 312-110, but earlier procedural votes were much closer and along party lines. For example, a motion to have the bill recommitted to the House Financial Services Committee for reworking was voted down 228-196, while another vote to raise the deductible insurers must pay to 1 percent per year instead of the .5 percent in the bill failed by the same margin.

The “no” votes came almost exclusively from Republicans who believe the program has been unjustifiably expanded.

With the veto threat from the Bush administration hanging over H.R. 2761–the Terrorism Risk Insurance Revision and Extension Act of 2007–the next step for the bill is the Senate Banking Committee, which has yet to show its hand despite the fact the current extension of TRIA expires Dec. 31.

In comments after the House action, Sen. Chris Dodd, D-Conn., chair of the Senate panel, called TRIA's extension “a tremendously important issue, and one that should–and must–be a top priority.”

“We must ensure that our nation is financially prepared and protected from the threat of a future terrorist attack,” he added. “I intend to continue to work…to ensure that TRIA's proven protections are extended.”

The administration position, echoed by Republicans during the floor debate, is that TRIA was only intended to be a temporary mechanism to allow the market to adapt “in the short run” to the economic dislocations resulting the Sept. 11, 2001 attack.

“Therefore, the administration opposes the legislation's 15-year extension,” a White House position statement said. “Instead, the program should be phased out in the near future.” The administration said the House bill runs contrary to that goal by “unnecessarily” expanding the program by including group life insurance and adding coverage for domestic terrorism.”

“The insurance market for these risks has remained robust and competitive since TRIA's inception, even absent a federal backstop,” the paper said. “Adding these insurance coverages to the federal reinsurance backstop sends the wrong signal to the marketplace, which instead should be encouraged to find new ways to diversify the risks of doing business.”

At the same time, the administration gave itself a lot of wiggle room. In its statement, the White House for the first time explicitly conceded it would accept some form of TRIA extension. “The administration is willing to work with Congress as the bill moves through the legislative process so that H.R. 2761 meets the critical elements of an acceptable extension,” the statement concluded.

Meanwhile, the veto threat and Senate action are not the only hurdles the legislation faces.

In an effort to expedite House action and skirt a requirement that any potential cost to the federal government be offset, the House Rules Committee added a provision a day before the vote requiring a second act of Congress to release federal TRIA funds that would ensue from a terrorist incident.

However, in a letter to several House members from New York, Rep. Steny Hoyer, D-Md., the majority leader, said the leadership intends to seek removal of this provision in an expected upcoming conference with the Senate–a point raised during the floor debate by Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, an original sponsor of the bill and its floor manager.

The problem was triggered by a Sept. 6 Congressional Budget Office report that would have required Congress to either raise revenues or cut expenditures by $8.4 billion over 10 years to comply with new pay-as-you-go House rules. The American Insurance Association wrote a letter to the House leadership on Sept. 18 voicing support for the bill but citing industry concerns about this provision.

In a bulletin to directors of the Council of Insurance Agents and Brokers sent after the House vote, Joel Wood, senior vice president of government relations, explained that in conversations with a number of leading brokers in recent days, “we have learned that enactment of such a provision would threaten the viability of the program, as reinsurers, rating agencies and others would take little faith in the pledge of ensuing congressional actions.”

Nonetheless, Mr. Wood added, “we appreciate the box that the leadership found itself in, and we understand the benefits of moving the process forward, especially as Jan. 1 renewals approach.”

He said that while “we take seriously the pledge of Majority Leader Steny Hoyer that this provision will indeed be subsequently removed…there was a very spirited debate on the House floor, wherein Republican leaders decried the changes in the legislation as a 'gimmick' and 'an outrage.'”

Besides extending TRIA for 15 years, the bill expanded the program compared to two prior versions to cover acts of domestic terrorism as well as terrorism by foreigners. It would also cover nuclear, biological, chemical and radiological attacks for the first time but reduce the retention rate by insurers for these claims to 5 percent–down from 20 percent in earlier drafts.

The bill also helps areas that have been victims of prior attacks by adding a reset provision, which makes it easier for insurers to underwrite terrorism coverage in places hit before by charging lower rates than would otherwise be called for.

To accomplish this, the bill allows insurers to 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–most notably New York.

“This is a matter of national security, and we cannot allow murderous thugs to define where we should build, where we should live and where we should work,” said Rep. Frank. As for calls to delegate terrorism risk back to private carriers, he said “it is not a good idea to allow the private market to take over [terrorism coverage]. No entities believe the private market could handle it. Not only don't insurers believe it, but customers believe that as well.”

He also noted strong business support, saying the legislation is not just being pushed by “liberal Democrats.”

Since the Senate has yet to address the issue, it may be late December before final action on an extension takes place. Industry lobbyists fear that the later Congress presents a bill to the president, the greater leverage critics of the program will have in shaping the final bill.

While insurance groups were united in praising the House for passing its bill, some pledged to seek further changes to address concerns such as requiring insurers to “make available” coverage for nuclear, biological, chemical and radiological risks.

AIA President Marc Racicot hailed the “strong bipartisan vote” and praised the House for “tak[ing] on the unique challenge of providing some measure of insuring against…NBCR terrorist threats.” Mr. Racicot's support was commented on during the House floor debate by Rep. Frank.

Others, however, are opposed to the industry taking on NBCR risks.

“While we wholeheartedly endorse many of the provisions in the bill, we remain concerned that the inclusion of a mandate for insurers to offer coverage for nonconventional weapons could jeopardize the ability of small- and medium-sized insurers to offer terrorism coverage–to the ultimate detriment of policyholders,” said Marliss Browder, senior federal affairs director at the National Association of Mutual Insurance Companies, noting such events are “considered uninsurable for many insurers.”

“We continue to believe that attacks using NBCR weapons would likely be so devastating to American society that the question of how to deal with them would be best served by creating a special panel to examine all the issues involved with such attacks,” Ms. Browder said.

Seconding NAMIC's concerns about NBCR coverage was Ben McKay, senior vice president of federal government relations for the Property Casualty Insurers Association of America, who called such an expansion “unwise, in our opinion.”

“We believe the House made several improvements to the existing program that will increase the availability and affordability of terrorism insurance,” he said. “We also think as the legislation moves through the U.S. Senate, further revisions should be made to make certain the very foundation of the program is not undermined.”

Robert A. Rusbuldt, CEO of the Independent Insurance Agents and Brokers of America, said his group “strongly supports the continuation of a terrorism insurance backstop,” calling TRIA “crucial for the business customers of independent agents and brokers and for our nation's economic security.”

He also said IIABA “strongly supports the bill's creation of a blue-ribbon commission to propose long-term solutions to covering terrorism risks” and is “pleased” the views of independent agents and brokers will be represented there.

Donna Pile, president of the National Association of Professional Insurance Agents, “commended” the House for realizing there is an ongoing need for a more permanent solution.

“This is not a task that the private market can handle on its own, either now or in the foreseeable future,” she added. “We urge the Senate to follow the House's lead and pass a TRIA extension, and we encourage President Bush not to veto this critical piece of national security legislation.”