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Bill calls for lasting terrorism backstop

Posted On: Jun. 24, 2007 12:00 AM CST

Bill calls for lasting terrorism backstop

WASHINGTON—A House bill that would extend the federal terrorism insurance backstop for 10 years appears to lack the broad bipartisan support enjoyed by its predecessors.

In fact, Republican members of the House Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises complained on several occasions during a hearing last week that the Democratic majority had ignored their suggestions while drafting the Terrorism Risk Insurance Revision and Extension Act of 2007.

Meanwhile, the measure "does not meet" the Bush administration's objectives, a key Treasury Department official told the subcommittee during the hearing.

The administration's three objectives are: The program must be both temporary and short-term; private-sector retentions must be increased before coverage can be triggered; and the program should not be expanded, said David G. Nason, assistant treasury secretary for financial institutions.

Mr. Nason did not, however, call for the program to end Dec. 31, its scheduled expiration date. He indicated that the White House might accept a two- or three-year extension under certain circumstances.

But extending the program without meeting the administration's three objectives "would be moving in the wrong direction," Mr. Nason told the panel. He took an even stronger position, one noted by Democratic panel members, in his written testimony, saying, "In Treasury's view, from both a market and economic perspective, it would be better to have no TRIA than a bad TRIA."

In addition to extending the backstop for 10 years, the Terrorism Risk Insurance Revision and Extension Act of 2007 would go beyond the current program, though, by requiring insurers to offer policyholders coverage for nuclear, chemical, biological and radiological terrorist attacks. It would require insurers to retain 7.5% of that risk, compared with 20% for conventional terrorism risks. It also would change the program's definition of covered terrorist attacks to include acts of domestic terrorism and add group life to the lines of insurance covered by the program. The bill would require further study of the development of a private terrorism insurance market.

"We have made significant improvements in this legislation, and we believe we have struck the right balance in providing assurances for business and workers in urban areas and encouraging the creation of a private market," Rep. Barney Frank, D.-Mass, chairman of the full committee and a co-sponsor of the bill with Rep. Michael Capuano, D-Mass., said in a June 18 statement announcing its introduction.

The subcommittee's ranking Republican, Ohio's Deborah Pryce, said she was "disappointed" that the measure contained no significant GOP provisions. But she said she was "confident" that a measure drafted in a bipartisan manner similar to that producing the Terrorism Risk Insurance Extension Act of 2005 would enjoy broad support.

"I believe we're taking a step back with this proposed legislation," said Rep. Ed Royce, R-Calif. He said the program had achieved its original goal of making coverage available, and should now be scaled back.

As of last week, only two Republicans had signed on to co-sponsor the bill.

Policyholders were generally supportive of the measure, albeit with caveats.

The Risk & Insurance Management Society Inc. is "very pleased" with legislation that would extend the federal terrorism insurance backstop for 10 years, said a RIMS official with responsibility for government affairs.

"We think the House has hit a home run with this legislation," said Terry Fleming, a director of New York-based RIMS and director-risk management for Montgomery County in Rockville, Md.

But Mr. Fleming said RIMS is "somewhat concerned" about the requirement that insurers participating in the program also make available coverage for NCBR risks.

"We feel there is not enough capacity for conventional" terrorism risks, Mr. Fleming said. "Lumping the NCBR make-available provision" in with existing mandatory make-available provisions could diminish capacity, he said.

"Much of what policyholders have been asking for is contained within the proposed House bill," said Bradley R. Wood, senior vp-risk management for Marriott International Inc. in Bethesda, Md. "This should not be interpreted, though, that the bill does not have shortcomings," said Mr. Wood, a longtime backstop proponent.

"Probably the biggest one is, though, we appreciate the modification of the $100 billion cap to be in addition to the insurers' retention and copayment obligations. Maintaining the cap at a $100 billion level materially increases policyholder risk that the cap will be exceeded" due to the enormous amounts of the new NCBR and life insurance risks that would come into the program, Mr. Wood said.

Insurers have also been generally supportive of the bill, but both the National Assn. of Mutual Insurance Cos. and the Property Casualty Insurers Assn. of America have called for removal of the NCBR provision. The American Insurance Assn., however, accepts the 7.5% retention provision, but urged lawmakers to reconsider the need for any co-sharing above that in an NCBR attack.