A vote in the Senate, coupled with signs of capitulation by the Bush Administration, has paved the way for an extension of the Terrorism Risk Insurance Act (TRIA).

On Wednesday, the Senate Banking Committee voted 20-1 for a seven-year extension of the TRIA program. In a letter to the committee, Treasury Secretary Henry Paulson also indicated that the administration, which had previously threatened to veto any extension of the TRIA program, would likely sign the legislation.

“I am committed to finding a solution that will address the long-term security needs of our people and our economy in order to ensure that our nation is best prepared to deal with future terrorist threats,” Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, said in a statement. “Nearly all of the experts agree that extending TRIA is vital to keeping our nation safe and secure, and that the insurance industry cannot do it alone.

However, potential stumbling blocks remain. As a compromise between Dodd and Ranking Member Richard Shelby (R-Ala,), the Senate version of the legislation is more modest in scope than the 15-year extension that passed in the House in September.

Most prominently, it lacks a provision mandating insurers make coverage available for attacks involving nuclear, biological, chemical or radiological (NBCR) weapons as the House version did. The inclusion of NBCR coverage has both proponents and opponents in the insurance industry. Those opposing the NBCR clause say that its implementation may engender solvency issues among small- and medium-sized insurers, and make the market less competitive as those insurers withdraw.

“We applaud the leadership Chairman Dodd and Ranking Member Shelby have shown in crafting legislation to renew this vital program that has been a foundation on which America's economic strength is built,” says David A. Sampson, president and chief executive officer of the Property Casualty Insurers Association of America (PCI). “We particularly appreciate the exclusion of a mandatory ‘make available’ requirement for NBCR attacks, and also of the inclusion of a seven-year term, which will allow time for a fair analysis of the potential for private sector growth in this market.

Those in favor of the clause counter that a NBCR attack is essentially uninsurable and that only the Federal Government has the wherewithal to handle such a catastrophic attack. “An adequate backup needs to be provided for these most catastrophic potential events that represent the greatest degree of uninsurable risk," says Patricia Borowski, national senior vice president of the National Association of Professional Insurance Agents (PIA).

Another area of contention regards the point at which federal assistance becomes available. The Senate bill contains a trigger point of $100 million before federal aid is offered, while the House version contained a $50 million trigger. “The lower trigger level will ensure that America's many regional insurance companies–vital to the success of America's insurance industry–will remain in good financial standing should terrorists again strike our homeland," Borowski says

Still, TRIA extension is far from a done deal. Issues such the NBCR clause will have to be reconciled before an acceptable version can find its way to the President’s desk.

In September, the Office of Management and Budget (OMB) released a “statement of administration policy” quite different in tone than Paulson’s letter to the Banking Committee. The OMB letter threatened a presidential veto of the legislation, singling out the NBCR provision as unacceptable.

Sources: Reuters, Senate Banking Committee, PCI, PIA, INN Archives

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