A bill proposing to have the United States government continue to provide a backstop for commercial insurance covering terrorism into 2015 is going back to the Senate, after the House of Representatives voted Dec. 10 in favour of amendments.
Risk and Insurance Management Society (RIMS) Inc. earlier warned that any company with “facilities, employees or components of their supply chain” in the U.S. would be affected if the Terrorism Risk and Insurance Act (TRIA), which expires Dec. 31, is not renewed.
TRIA, initially passed in 2002, essentially requires commercial carriers to include terrorism coverage in property policies and provides for the U.S. government to share losses.
The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), S.2244, was initially sponsored by New York Democratic Senator Chuck Schumer. The Senate passed an earlier version of that bill July 17 but the House of Representatives made some changes to it before passing it Dec. 10 and sending it back to the Senate.
Before the bill is sent to President Barack Obama – who could either veto it or sign it into law – both houses of Congress will have to agree on the same version of it.
If passed into law in its current form, TRIPRA would extend TRIA through Dec. 31, 2020.
“We didn’t change the overall structure of the TRIA program,” Republican Representative Randy Neugebauer (pictured, above), chairman of the housing and insurance subcommittee of the House of Representatives Financial Services Committee, said Dec. 10 of TRIPRA. “We have tried to keep it within the confines of how it has been operating over the last few years.”
Currently in order to qualify for government funding under TRIA, an incident an incident would have to be certified as a terrorist act by the U.S. Secretary of State, Attorney General and Secretary of the Treasury, RIMS stated in 2013 in a report. An attack would have to result in aggregate losses to the insurance industry of more than $100 million, RIMS stated in the paper, titled Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective. There is a deductible, to the private insurers, of 20% of their annual direct earned premiums from commercial P&C lines, RIMS noted at the time. Once that deductible is exceeded, the federal government covers 85% of the insurer’s loss above the deductible, until the total losses are $100 billion.
“We did leave in place a deductible, and basically the industry has to take the first loss up to about 20% of their annualized premium for the previous year,” Neugebauer said Dec. 10. Neugebauer is congressman for the 19th district of Texas. “Today, on an industry-wide basis, that is about $40 billion. So if you have got a $200 million trigger, you have got a $40 billion cushion between the taxpayers and a potential loss.”
Initially, a House version of the TRIA extension bill proposed to raise the program trigger to $500 million, noted Democratic Representative Carolyn B. Maloney, who represents the 12th district of New York, in New York City.
“This would have forced many small- and medium- sized insurers out of the market entirely and would have actually decreased the amount of terrorism insurance available in our country,” Maloney said. “Fortunately, this compromise bill only raises the trigger for the government backstop from $100 million to $200 million. This modest increase will ensure that small- and medium-sized insurers are not forced out of the market, while also protecting taxpayers.”
Before tabling the bill last week in the House, Republican Representative Jeb Hensarling (chairman of the House Financial Services Committee) added another amendment – on federal derivative-trading regulations – that would not affect TRIA but is opposed by some Democrats.
The Democratic Party holds the majority of Senate seats until Jan. 3. That is when the new members of Congress elected in the Nov. 4 midterm elections take office, at which point the Republican Party will hold a majority of Senate seats. The Republicans held a majority of House seats before the Nov. 4 election and continue to do so.
Read More: Insurance Information Institute warns of “tightening” market as Terrorism Risk Insurance Act expires this year
During debate Dec. 10 on the TRIA extension bill, a Democrat representative, Maxine Waters (pictured, above), suggested that Hensarling’s derivative trading amendment is an attempt to “undermine” part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank bill, which became law in 2010, is intended to regulate the over-the-counter derivatives marketplace.
“What I worry about is not so much what (Hensarling) has put into TRIA,” said Waters, who represents the 43rd District of California in southern Los Angeles. “I worry about what is going into the omnibus bill.”
Ultimately, Waters did vote in favour of the TRIA extension bill.
After 19 suicide hijackers crashed four civilian airliners in the Eastern U.S. the morning of Sept. 11, 2001, insurance carriers “basically said they cannot model terrorism acts,” Waters told the House Dec. 10.
After the 9-11 attacks, “the only place we could get (commercial policies covering terrorism) was Lloyd’s of London, and we lost thousands of jobs and our economy came to a standstill,” recounted the 12th District of New York’s Maloney.
Read More: Availability, affordability of terrorism insurance in U.S. ‘at risk’ if TRIA is not renewed: Working group
“If TRIA is not authorized, Illinois’ small insurers may be subject to costly rating downgrades or have to exit certain insurance markets altogether, leaving customers in the lurch,” Randy Hultgren, a Republican representing the 14th District of Illinois, west of Chicago, told Congress. “In the event of an attack, potential targets like Soldier Field or Chicago skyscrapers would be left with
out protection for massive economic losses.”
The TRIA extension bill “does not include the so-called ‘bifurcation’ proposal, which would have treated nuclear, biological, chemical, and radiological attacks differently from the so-called ‘conventional’ terrorism attacks,” Maloney noted.
Another congress member representing part of New York City note that insured losses arising from the 9-11 attacks were about US$42.9 billion adjusted for inflation.
“It was the largest insurance loss in global history at that time,” said Gregory W. Meeks (pictured, left), a Democrat representing the 5th District of New York, which encompasses John F. Kennedy International Airport and Far Rockaway. “Prior to 9/11, insurance companies generally covered all of the costs of terrorist attacks. After 9/11, terrorism risk insurance quickly became either unavailable or very, very expensive and unaffordable.”
TRIA “has tripled the number of small businesses that have terrorism protection since 2002,” said Democrat Nydia Velazquez (pictured, left), who represents the 7th District of New York, which includes southeast Manhattan and parts of Queens and Brooklyn. “TRIA also ensures rates remain affordable. Under the program, terrorism coverage averages just 3 to 5% of a small business’ annual insurance premium.”
In its Commercial Consumer’s Perspective last year, RIMS concluded that an extension to TRIA should require the inclusion of coverage of acts of terrorism involving the use of nuclear, biological, chemical or radiological (NBCR) devices.
“TRIA, as currently constructed, neither includes nor excludes NBCR events,” RIMS stated at the time, adding commercial insurers in the U.S. have “have largely relied on long-standing standard exclusions for nuclear and pollution risks to include exclusions for NBCR events in terrorism policies.”
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Randy Neugebauer, chairman of the housing and insurance subcommittee of the United States House of Representatives Financial Services Committee. With a bill extending coverage into 2015, Republican congress members have “tried to keep” the Terrorism Risk and Insurance Act “within the confines of how it has been operating over the last few years,” said Neugebauer, a Texas Republican.
Maxine Waters, a Los Angeles-area Democrat who represents the 43rd District of California in the United States House of Representatives. After the September 11, 2001 attacks, insurers “basically said they cannot model terrorism acts,” Waters told Congress. Waters explained to Congress why Democrats do not like some amendments – unrelated to commercial terrorism insurance – that Republicans made to a Senate bill extending the Terrorism Risk and Insurance Act.
Gregory W. Meeks, a New York City Democrat who represents the 5th District of New York in the United States House of Representatives. During debate on a bill extending the Terrorism Risk and Insurance Act, Meeks said that after the Sept. 11, 2001 attacks, “terrorism risk insurance quickly became either unavailable or very, very expensive and unaffordable.”
Nydia Velazquez, a New York City Democrat who represents the 7th District of New York, in the United States House of Representatives. With the Terrorism Risk and Insurance Act, terrorism coverage “averages just 3 to 5% of a small business’ annual insurance premium,” she said during a session of Congress.