TRIA

So, with the end of the year coming up (and with commercial lines insurers already well into wrapping up 1/1 renewals), Congress appears to have finally gotten its act together to compromise on TRIA reauthorization. From the Washington Business Journal:

The U.S. House of Representatives voted 360-53 Dec. 18 to extend the terrorism risk insurance program for seven years, a significantly shorter extension than property owners originally sought.[...]

The Senate passed a bill Nov. 16 that also extends the program for seven years. It will now be passed to President Bush to be signed into law.

So, we won’t have to go through the reauthorization circus again until 2014? Cool!

Of course, there is still the question of whether the President will sign it. From Reuters:

“We are reviewing that bill,” said White House spokeswoman Dana Perino in a briefing with reporters in answer to a question about whether President George W. Bush would sign the bill to renew the Terrorism Risk Insurance Act (TRIA).

“Last spring, we had concerns about the bill,” Perino said. “So, they’re reviewing the bill now for the final scrub of it before we can decide whether or not he’ll sign it.

There’s nothing like waiting until the last minute, eh?

Seen in Insurance Journal:

Rep. Barney Frank, D-Mass., who chairs the House Financial Services Committee that produced the House bill, said if the Senate avoids compromise and takes a “take it or leave it” attitude on the bill, he will counter with legislation to extend the current program for 120 days and deal with the bills’ differences next year.[...]

Frank, speaking before the Property Casualty Insurers Association of America in Boston, expressed frustration with the Senate that he says is operating from a “strength of weakness” position by claiming that its bills on flood insurance and terrorism insurance are the best it can do and if the House won’t just go along, then the programs will expire.

It’s good to see that an extension is possible while the House and Senate work out the differences in the proposals.  I would point out that the prep time for new/renewal quotes on some large accounts is rather long, and a 120-day extension only adds to the cloud of uncertainty in which a risk must be priced and underwritten…but at this point, the industry seems to be getting fairly competent at working in the uncertainty out of unfortunate necessity.

There’s been a lot of speculation that a TRIA reauthorization bill that recently was debated in the House would never become law due to Presidential resistance to some of its more generous terms.

Various outlets are reporting that a compromise measure has surfaced in the Senate. Insurance Journal offers this summary of the changes:

Both bills would eliminate the distinction between domestic and foreign terrorism.

However, the Senate version does not contain other features that the House wants, including a provision mandating that insurers make available coverage for nuclear, biological, chemical and radioactive (NBCR) attacks. Instead of including NBCR coverage as the House version does, the Senate bill provides for a study of the insurance challenges posed NBCR threats.

The Senate version also does not incorporate group life insurance or the lower retentions and deductibles the House supported. The Senate wants the government program to trigger after $100 million in losses, whereas the House sets the trigger at $50 million.

And just in case you don’t have an underwriter around to remind you, remember that 1/1 renewals are in the pipeline in at least certain markets.

I didn’t want this blurb from Business Insurance getting lost in all my travel this week:

The House of Representatives Wednesday afternoon approved a bill that would extend the federal terrorism insurance backstop for 15 years.

The Terrorism Risk Insurance Revision and Extension Act—which passed by a vote of 312 to 110—would also add group life to the list of insurance lines covered by the backstop, which is slated to expire Dec. 31. The measure would also expand the program by allowing the backstop to respond to acts of both domestic and foreign-initiated terrorism and by requiring insurers to offer coverage for acts of nuclear, chemical, biological and radiological terrorism.

Not many folks believe that this cadillac bill will become law. The Senate hasn’t yet begun work on its version, and Bush has promised to veto any sane, longer-term reauthorization.

TRIREA, the House’s plan to extend and expand federal terrorism backstop coverage, is reaching a critical point in legislation process. Adding a bit of chaos to the debate on TRIREA is an OMB memo summarizing one part of the Executive Branch’s thoughts on the bill. From Business Insurance:

The OMB statement said the House bill “effectively makes TRIA permanent, increases the role of the federal government, and expands the scope of coverage well beyond the point where it is needed.” If the bill were to reach the president in its current form, “his senior advisors would recommend that he veto the bill,” according to the OMB statement.

I think many insurers, are willing to tolerate some of the bill’s shortcomings, given that it would seem to end the new tradition of figuring out what to do about terror cover on renewing policies every other year.

I tend to agree—that the over-breadth in what’s proposed to be covered under TRIREA is more than offset by the 15-year extension.

Now, if only we could get the Administration to come back to reality and see the concern as having a longer lifespan than they’d like to believe….

Seen in Insurance Journal:

The [House Financial Services Committee] voted by 49 to 20 in favor of H.R. 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA), which would extend the federal backstop for 15 years and expand it to include a controversial requirement that insurance companies make available coverage against nuclear, biological, chemical and radiological (NBCR) attacks, a provision not welcome by all insurers.[...]

The bill seeks to grow the private sector’s involvement in insuring against terrorism by lowering the event trigger. It reduces the amount of money an insurer must pay — to $50 million from $100 million — while maintaining deductibles and copayments at the present 20 percent levels.[...]

An administration response to the vote is up on the U.S. Treasury website:

“The Administration has frequently stated the need for three critical elements in TRIA reauthorization: the program should remain temporary and short-term, with no expansion and a continued increase of private sector retention. Today’s effort to extend TRIA does not meet these standards for an improved market and we strongly oppose this bill.

“We are particularly disappointed with the Committee’s decision to extend the program for 15 additional years. This extension runs counter to the public policy goal of reducing and eventually eliminating the federal government’s role in the terrorism insurance market, and it sends the wrong message to the marketplace for a program that was intended to be temporary.

One problem with TRIA being temporary—I don’t see most insurers being willing to write terror cover on their own. That’s exactly the situation where it’s appropriate for the government to enter the insurance marketplace. See, for example, the concepts behind the National Flood Insurance Program.

Seen at Business Insurance:

The [House Financial Services Committee]’s Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee is expected to begin marking up the bill early next week, according to industry sources. The full committee could take up the measure as early as next week as well.

The bill would extend the federal terrorism insurance backstop, currently slated to expire on Dec. 31, for 10 years. Among other things, the measure would extend the backstop’s coverage to group life insurance and would permit the program to respond to acts of domestic- as well as foreign-initiated terrorism.

A 10-year extension, being worked on several months before the current iteration of TRIA is set to expire? I am most impressed.

Insurance Journal offers this quote of the day:

“The potential unavailability of terrorism risk insurance at the end of this year impacts our financing agreements and potentially hurts the commercial real estate market,” said Joseph Ditchman, former president of the Ohio Association of Realtors and a partner at Colliers Ostendorf-Morris, a Cleveland commercial real estate firm.

According to IJ, the comment was made as the real estate industry was before a Congressional subcommittee meeting testifying in support of not only renewing TRIA, but also extending it over the long term.

Let’s see. The current incarnation of TRIA is set to expire on December 31, which means that it would be nice to have any changes to or nonrenewal of TRIA to be decided upon by September or October, in order to have a clear picture in place in time to process 1/1 business.

I won’t hold my breath on that actually happening, but at least there is some activity in Congress, according to this Business Insurance article:

The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold an April 24 hearing on the future of the federal terrorism insurance backstop, the panel announced Wednesday.

I don’t know whether to be more surprised that Congress might not be waiting until the last minute, or that there is serious thought of making TRIA permanent. From Business Insurance:

The Terrorism Risk Insurance Act is set to expire at the end of 2007. Rep. Barney Frank has said before that he favors renewal of the post-9/11 program.

“We’ll do TRIA very quickly,” the Massachusetts Democrat said at the annual Reuters Regulation Summit in Washington.

“TRIA is important not so much for the insurance industry as for the commercial real estate industry. You won’t get any buildings built in New York, in Boston, in Chicago unless you have it…We will extend TRIA,” Frank said.

The article goes on to mention that Congressman Frank, who’s now the chairman of the House Financial Services Committee, is favoring at least long-term, even permanent renewal.

TRIA’s renewal is, of course, important since no commercial property insurer is willing to accept any significant terrorism risk, given the unknowns involved. Without terror cover, lenders are unwilling to finance commercial property sales or construction in major metro areas…and the effects ripple out from there.