(Bloomberg) -- A U.S. program that backstops insurance companies’ losses from acts of terrorism is set to end after the Senate adjourned without extending it.
Efforts to reauthorize the Terrorism Risk Insurance Act for six years fell apart after Senator Tom Coburn, an Oklahoma Republican who is retiring, held up the legislation. Without a renewal, the program will expire Dec. 31.
“It’s unfortunate, but his objection is going to kill TRIA,” Majority Leader Harry Reid, a Nevada Democrat, said last night on the Senate floor. “I’m very sorry about that, but it’s a fact.”
Congress first passed the backstop after the terrorist attacks of Sept. 11, 2001, when insurers said they were hesitant to sell coverage on New York City office buildings. Coburn’s objection stemmed from concerns over the underlying policy and a plan to set up a regulatory body to supervise insuranceagents and brokers.
Taxpayers assume most of the risk while “the insurance industry makes all the money,” Coburn said last night.
The House passed an extension on Dec. 10 that would reimburse insurers after industrywide losses reach $200 million, compared with $100 million under the current law. The House measure would also increase companies’ co-payments to 20 percent from 15 percent and gradually raise the threshold for government involvement.
In approving the extension, the House added an unrelated provision tied to the Dodd-Frank financial-regulation overhaul that complicated the bill’s prospects. While the Senate had approved its own reauthorization of the insurance program in July, the changes made by the House last week meant the Senate had to take the bill up again.
Senator Charles Schumer, a New York Democrat, said he warned House Majority Leader John Boehner weeks ago that the modifications “risked killing terrorism insurance.” He urged lawmakers to pass an extension quickly, because “billions of dollars of projects and hundreds of thousands of jobs are at risk,” according to a statement.
The Dodd-Frank rollback in the House bill would have exempted agricultural and energy companies from having to post collateral for swaps traded directly with banks. The measure also included a requirement that the Federal Reserve include a governor with community banking experience.
The Property Casualty Insurers Association said it was “unconscionable” that the Senate would leave without extending the program.
“PCI is profoundly disappointed by the dysfunction in Washington and we urge the next Congress to address a long-term reauthorization” immediately when they convene in January, David Sampson, the group’s president said in a statement.
If the program lapses at the end of the year, insurers will have the right to cancel terrorism policies after Jan. 1, Howard Kunreuther and Erwann Michel-Kerjan wrote wrote for Bloomberg Businessweek in the Dec. 9 issue. They are likely to do so for fear of insolvency should a massive terrorist attack take place with no government backup, according to the two academics, who wrote a paper on the law’s impact for the Wharton Risk Center.
Kunreuther and Michel-Kerjan asserted that a lapse could lead to cancellation of events such as the Super Bowl, a contention disputed by the National Football League.
“The Super Bowl will be played,” Greg Aiello, the NFL’s senior vice president of communications, said in a statement reported by news organizations including ABC and CNN.
The legislation is S. 2244.
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