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WASHINGTONThe House Financial Services Committee's vote to extend the federal terrorism insurance backstop by 15 years should not doom the program despite the Bush administration's opposition to expanding the program, observers say.
The committee approved an amended version of the Terrorism Risk Insurance Revision and Extension Act last week by a 49-20 vote. The most significant amendment calls for extending the federal insurance backstop by 15 years rather than the 10 years provided in the version of the bill approved last week by the committee's Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee.
The amendment to extend the program for 15 years, which was offered by Rep. Peter King, R-N.Y., enjoyed the support of the committee's chairman, Rep. Barney Frank, D-Mass.
The subcommittee had already approved several significant changes to the program. These include adding group life insurance to the lines of insurance covered by the backstop, expanding the program to cover acts of domestic- as well as foreign-originated terrorism, and requiring participating insurers to offer coverage for terrorist acts involving nuclear, biological, chemical and radiological agents.
In addition to calling for a 15-year extension, the full House committee approved amendments that include exempting insurers with annual direct premiums of less than $50 million from having to offer coverage for nuclear, biological, chemical and radiological attacks if insurers show that doing so would jeopardize their solvency. Another amendment would tie the size of insured losses required to trigger the backstop to a measure of inflation.
The Bush administration quickly expressed its displeasure.
"We are particularly disappointed with the committee's decision to extend the program for 15 additional years," said Assistant Treasury Secretary for Financial Institutions David G. Nason. "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."
"We strongly oppose this bill," said Mr. Nason in his statement.
The full House is expected to take up the measure after it returns from its August recess. The Senate has yet to move on the issue.
The Risk & Insurance Management Society Inc. welcomed the vote.
"RIMS strongly supports the Terrorism Risk Insurance Revision and Extension Act as it was marked up" in committee, said Terry Fleming, a RIMS board member. "The inclusion of a 15-year extension, NBCR coverage with lower trigger and deductible, as well as eliminating the distinction between domestic and foreign terrorism will provide long-term stability to the insurance markets and provide peace of mind for businesses and their workers. We encourage the full House membership to pass the legislation as soon as possible," said Mr. Fleming, who is also director-division of risk management for Montgomery County, Md., in Rockville.
Industry representatives downplayed the impact of the longer extension.
"It doesn't doom the bill," said Joel Wood, senior vp for the Council of Insurance Agents & Brokers in Washington. "I think there is a very high-stakes game in respect to the administration's opposition to that bill. On the other hand, I could argue that 15 years is politically pushing the envelope, but I likewise believe that it helps set the bar a little higher for the Senate consideration. I think it is noteworthy that the administration has expressed understandable opposition but has not issued any veto threat."
Mr. Wood said he was "very optimistic that this will be resolved amicably and the president will sign it."
"I think it's distinction without a difference," said Ben McKay, senior vp in the Property Casualty Insurers Assn. of America's Washington office. Mr. McKay said it was easier to propose a longer duration rather than a shorter duration because "it is more likely that terrorism is going to be around for 50 years than for five."
He noted that more than 70% of the committee's members supported the bill, and "it doesn't seem likely" that the longer duration will jeopardize it. "The significance may come into play in negotiations with the Senate depending on the length of the extension chosen by Senate."
"It's going to be interesting to see what comes out of the Senate as far as duration," said Marliss Browder, senior federal affairs director for the National Assn. of Mutual Insurance Cos. in Washington. "As far as NAMIC is concerned, we've always supported a long-term public-private partnership."
The American Insurance Assn. "is on record as supporting a permanent program," said Leigh Ann Pusey, the Washington-based insurer group's chief operating officer. "We were encouraged by the discussions of a long-term program--eight, 10, 15 years. The longer, the better for creating stability in the marketplace," she said.