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The federal terrorism insurance backstop will expire Dec. 31 after the Senate failed to reauthorize it Tuesday.
Among other things, the bill, an amended version of a measure passed by the Senate earlier this year, would have extended the program for six years, raised the minimum trigger for activating federal action to $200 million from $100 million and increased insurers' share of the cost of losses from future catastrophic terrorist attacks to $37.5 billion.
The Senate's inaction also killed any chance of the National Association of Registered Agents and Brokers, designed to streamline interstate agent and broker licensing, becoming law this year. The NARAB provision had been inserted into the terrorism insurance bill.
Reaction from risk managers and the property/casualty insurance industry to the death of the Terrorism Risk Insurance Program Reauthorization Act of 2014 — S. 2244 — was swift, predictable and harsh.
“We are surprised and disappointed — we thought there was an agreement worked out,” said Carolyn Snow, president of the Risk & Insurance Management Society Inc.
“We're really disappointed,” Ms. Snow said. “I think it's an example of politics over progress. This is a bill that is really, really important to insurance consumers — not just to New York, but everywhere. For it to be held up for no good business reason is really frustrating.”
“It is unconscionable that the U.S. Senate would adjourn without finishing their job and reauthorizing a long-term Terrorism Risk Insurance Act when the threat of a terrorist attack against the United States is at the highest level it has been in a decade,” said David A. Sampson, president and CEO of the Chicago-based Property Casualty Insurers Association of America, in a statement. “TRIA plays a vital role in our national economic security. If a massive attack occurs before TRIA is reauthorized, there could be no terrorism insurance coverage or taxpayer protection. PCI is profoundly disappointed by the dysfunction in Washington, and we urge the next Congress to address a long-term reauthorization of TRIA immediately when they convene in January.”
The Senate's lack of action also drew fire from House Speaker John Boehner, R-Ohio. The House had passed the measure earlier this month and sent it to the Senate for what appeared likely to be swift concurrence.
“We are disappointed that Senate Democrats chose to prioritize controversial nominations over the bipartisan, House-passed TRIA bill that should be on its way to the president's desk for his signature,” said Rep. Boehner on his blog Wednesday.” We expect the House will act very quickly in the new Congress to reauthorize this program.”
The backstop program, which was created by the Terrorism Risk Insurance Act of 2002 and extended in 2005 and 2007, enjoyed support from risk managers and nearly the entire property/casualty insurance industry.
But the NARAB provision — long sought by agent and broker groups — drew the opposition of Sen. Tom Coburn, R-Okla., who is retiring. Sen. Coburn had insisted that the original Senate bill create NARAB for only two years, arguing that doing so was necessary to protect states' rights.
Although the initial Senate bill contained that limitation, the House version contained no NARAB sunset. Sen. Coburn refused to compromise and placed a “hold” on the bill, which effectively killed it.
“With more than a week before Christmas, we are profoundly disappointed in the Senate's premature decision to leave town late last night without extending the Terrorism Risk Insurance Act, which provides vital protection for the U.S. economy,” Robert Rusbuldt, president and CEO of the Alexandria, Virginia-based Independent Insurance Agents & Brokers of America, said in a statement.
“The TRIA legislation had overwhelming bipartisan support in both chambers of Congress, along with strong support from the White House,” he said. “This inaction is particularly galling in light of the 417-7 vote in the House last week on this exact same legislation.”
“We urge Congress to pass both common-sense, bipartisan pieces of legislation as soon as they convene for the 114th Congress early next year,” Mr. Rusbuldt said.
“We are incredibly disappointed in Congress,” said Charles Chamness, president and CEO of the Indianapolis-based National Association of Mutual Insurance Companies, in a statement. “The country deserved better. We have 14 days left until the program expires; if they won't return on their own, the president should call them back to town to finish their job.”
“People have been asking what will happen now that TRIA is set to expire and we have to tell them it's not clear. And that's exactly the point,” Mr. Chamness said. “The whole purpose of TRIA was to provide stability and certainty to the market, and Congress has now done the opposite. The industry will have to spend the holiday season scrambling to get notices out to policyholders, re-evaluating its risk and seeking other remedies.”
With the program's expiration, there likely will be a tightening of insurance markets, and terrorism coverage exclusions in commercial insurance policies will go into force, NAMIC said in the statement. “This could lead to many commercial financial covenants and loans going into technical default,” it added.
“Without TRIA in place on Jan. 1, insurers will be forced to assess their exposures,” said Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Association in a statement.
“The program's lapse will significantly jeopardize the terrorism insurance marketplace that currently protects our nation's economy against major acts of terrorism,” she said. “We strongly urge the new Congress to take up the House-Senate negotiated TRIA reauthorization package as its first item of business when it returns in January in order to minimize marketplace disruptions. A failure to quickly reauthorize TRIA would be a failure to protect our economy from terrorism.”
A group of insurance and business associations has sent a letter to every U.S. senator asking that the Senate approve without amendment a House of Representatives measure that would extend the federal government's terrorism insurance backstop for six years.