TRIA Passes House, Issues Remain

Washington–Insurance industry associations are giving mostly favorable reviews to the passage of H.R. 2761, legislation that would extend and expand the Terrorism Risk Insurance Act (TRIA). The bill, which passed the lower chamber yesterday by a vote of 312-110, aims to extend TRIA for 15 years, and expand the number of lines covered within it.

“This strong bipartisan vote is to be commended and we look forward to the Senate beginning action on this bill as soon as possible,” says Gov. Marc Racicot, president of the American Insurance Association (AIA). “A continued, vibrant federal terrorism risk insurance program remains critical to the national security and economic well-being of our nation for the foreseeable future.”

Life insurers, in particular, are lauding the inclusion of group life insurance as a covered line.

“After 9/11, group life insurers were generally unable to obtain catastrophic reinsurance, especially for terrorist events. While this type of reinsurance has become more available since then, it generally comes with higher deductibles, various exclusions and lower overall coverage limits,” says Frank Keating president and CEO of the American Council of Life Insurers (ACLI). “Adding group life insurance to the TRIA program will help ensure that group life insurers will have the capacity to meet their commitments in the event of a catastrophic terrorist attack and that group life insurance will remain available and affordable after such an attack.”

While the expansion of TRIA to include group life coverage is not controversial, a provision mandating insurers to make coverage available for attacks involving nuclear, biological, chemical or radiological (NBCR) weapons, has both proponents and detractors.

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.

“Such a mandate would increase the cost of coverage for consumers and may actually lead to more businesses going without insurance against terrorist attacks—including those using ‘conventional’ weapons,” says Ben McKay, senior vice president, federal government relations for the Property Casualty Insurers Association of America (PCI). “This provision undermines the intent of the program, reduces consumer choice and would leave more Americans and our economy unnecessarily exposed to the financial devastation from a terrorist attack. We are working hard to make certain that the Senate understands the unintended consequences of this mandate and addresses this issue in a more effective manner.”

Proponents of the clause counter that, like it or not, the federal government would act as the reinsurer in case of an NBCR attack.

“Insurers already knew that virtually no private market exists for NBCR terrorism, and two government studies, which confirmed this, also add that there is little potential for a private NBCR market to develop in the future,” says Racicot. “To fill this gap, the legislation passed today requires insurers to make available additional NBCR coverage as part of the federal terrorism insurance program to policyholders who accept terrorism insurance. Insurers can do this because the legislation provides them with more limited and certain financial exposure.”

On Monday, the Office of Management and Budget released a “statement of administration policy” threatening a presidential veto of the legislation, singling out the NBCR provision as unacceptable.

“The Administration strongly opposes efforts to expand the federal government’s role in terrorism reinsurance,” the statement reads. “The most efficient, lowest cost and most innovative methods of providing terrorism risk insurance will come from the private sector.”
< r /> Given the bill passed by such a wide margin, a veto could be overridden in the House. However, a source a close to the situation told INN today that he expects the version of the bill produced by the Senate to hew more closely to the Bush Administration’s wishes.