House Subcommittee Holds Hearing to Examine TRIA Extension and Revision

On Thursday, June 21, 2007, the United States House of Representatives Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing entitled “Examining a Legislative Solution to Extend and Revise the Terrorism Risk Insurance Act.”
  
One day prior to the hearing, Representative Mike Capuano and House Financial Services Committee Chairman Barney Frank introduced, H.R. 2761, also known as the “Terrorism Risk Insurance Revision and Extension Act of 2007” (“TRIREA”).

TRIREA would extend the Terrorism Risk Insurance Act (“TRIA”) for ten years and is intended to spur development of a private market for terrorism risk insurance.  After the 9/11 terrorist attacks, many insurance companies excluded terrorism coverage from their insurance policies.  As a result, Congress passed TRIA in 2002, which created a federal backstop to protect against terrorism-related losses. 

In 2005, the measure was extended for two years and currently is set to expire at the end of 2007.  Also joining Representative Capuano and Chairman Frank in co-sponsoring TRIREA are Representatives Gary Ackerman, Joseph Crowley, Paul Hodes, Steve Israel, Peter King, Carolyn McCarthy, Carolyn Maloney, Gregory Meeks, Dan Boren, Emmanuel Cleaver, Lincoln Davis, Al Green, Luis V. Gutierrez, Steven Lynch, Tim Mahoney, David Scott, Christopher Shays, Brad Sherman, Albio Sires, Melvin Watt and Robert Wexler.

Congressman Paul E. Kanjorski, the Chairman of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, held the hearing to discuss the bill.

“TRIA has helped make terrorism insurance available and affordable to businesses, particularly those in our major urban areas. Improving and extending the program will help stabilize the economy, as well as help protect American workers and our communities against possible terrorist attacks,” stated Congressman Mike Capuano.

“We need to keep in perspective that this bill is necessary for economic development and to protect property owners, building tenants, developers and people who work or live in high risk areas,” said Chairman Frank.  “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.”

The President’s Working Group on Financial Markets recently concluded that a private market for terrorism insurance is not yet commercially viable – especially with regard to insurance against nuclear biological chemical and radiological (“NBCR”) acts of terrorism. 

TRIREA will include provisions to:

• Extend TRIA for 10 years with current co-payments and deductibles for conventional terrorism acts
• Expand TRIA’s “make available” requirement to include NBCR coverage
• Change TRIA’s definition of terrorism to include acts of domestic terrorism
• Set the program trigger at $50 million
• Add group life insurance to the lines of insurance for which terrorism coverage must be made available
• Decrease deductibles and triggers for areas previously impacted by a significant terrorist attack
• Continue to require studies on the development of a private market for terrorism risk insurance
   

Small to mid-sized insurers are strongly opposed to the required coverage for NBCR.  On June 21, testimony was given on behalf of the American Insurance Association and the Coalition to Insure Against Terrorism, whose joint proposal is to require all property insurers to sell insurance for NBCR attacks.  The proposal, however, would have the federal government cover losses above a certain amount.

An alternate proposal was offered by representatives of the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association, both of which want to see TRIA extended, but believe that the federal government should absorb all losses from a NBCR attack. 

With critics of the legislation saying that the market can absorb the risk, and that the bill amounts to an insurer giveaway, there is some skepticism about H.R. 2761 passing.  The White House, which has supported free enterprise solutions, voiced similar concerns in 2005 when TRIA was extended for two years.

The White House again has voiced its opposition to extending TRIA.  David Nason, Assistant Secretary of the Treasury for Financial Institutions, testified before the House subcommittee and voiced the Administration’s opinion that TRIA should “remain temporary and short-term,” although President Bush has not threatened to veto the pending bill. 

Below is a witness list from the June 21 hearing.  Click on the name of each witness to view his or her prepared testimony:

Panel One

The Honorable David G. Nason, Assistant Secretary for Financial Institutions, U.S. Department of the Treasury 

The Honorable Eric R. Dinallo, Superintendent, New York Insurance Department
 

Panel Two

The Honorable Marc Racicot, Chief Executive Officer and President, American Insurance Association 

Mr. Christopher J. Nassetta, President and Chief Executive Officer, Host Hotels & Resorts, Inc. and Chairman, The Real Estate Roundtable, on behalf of the Coalition to Insure Against Terrorism

Ms. Jill M. Dalton, Managing Director, Global Property & Multinational Practice, Marsh, Inc., on behalf of the Council of Insurance Agents and Brokers 

Ms. Sharon Emek, Ph.D., C.I.C., Partner, CBS Coverage Group, Inc., on behalf of the Independent Insurance Agents & Brokers of America 

Mr. Warren Heck, CPCU, Chairman and Chief Executive Officer, Greater New York Mutual Insurance Company, on behalf of the National Association of Mutual Insurance Companies and the Property Casualty Insurance Association of America 

Dr. Howard Kunreuther, Ph.D., Cecilia Yen Koo Professor of Decision Sciences & Public Policy, Co-Director Risk Management and Decision Processes Center, Wharton School, University of Pennsylvania

Mr. Frank Nutter, President, Reinsurance Association of America

Mr. Dennis W. Smith, President and Chief Executive Officer, Missouri Employers Mutual Insurance

Available Member Statements: Chairman Kanjorski

To view recent news coverage of this matter, please click on the headlines below:

White House Says Nix To Long-Term TRIA

Industry Split Over TRIA’s Coverage For NBCR Risks

U.S. Treasury: TRIA must stay short-term, limited 

Marsh, Council of Insurance Agents & Brokers Support 10-Year Extension of TRIA

 

Should you have any comments or questions, please do not hesitate to contact this office.