Fate of terrorism insurance is in hands of Congress

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by Joan Tupponce

As 2007 winds down to its final weeks, one issue on Congress’ “to do” list is deciding the future of terrorism insurance coverage in the United States.

Terrorism insurance has been the subject of some debate during the past five years. The terrorist attacks on 9/11 caused $32 billion in insured losses, and terrorism insurance became virtually unobtainable. That situation prompted Congress to pass the Terrorism Risk Insurance Act (TRIA) in 2002 and then extend the law in 2005 through Dec. 31, 2007.

The House of Representatives and a Senate committee have passed legislation that would extend the law beyond the end of this year. But major differences in the legislation reflect continuing disagreement over the need for federal help in terrorism insurance. The two bodies would have to reconcile those differences before any extension takes effect.

TRIA provides a federal “backstop” for insurance claims related to a terrorist act. The government will step in to provide reinsurance, helping to pay for claims once damages reach a certain level.

The original act was intended to be a temporary measure that would allow the insurance market to recover from 9/11. But some business groups, including the Real Estate Roundtable, contend that the insurance industry will never develop adequate capacity without some kind of federal backstop.

Further complicating the issue is the fact that certain parts of the country, such as New York City and Washington, D.C., are considered “high-prone,” or at higher risk for a terrorist attack. Some businesses outside those areas have begun questioning the need for terrorism insurance coverage. “The affordability of terrorism insurance is debatable,” says Dudley Fulton, president and CEO of USI Insurance’s mid-Atlantic region in Norfolk. “Most people are making the cost judgment that it’s not worth it if you aren’t in a high-prone area.”

The U.S. House voted in September to extend TRIA for 15 years, adding domestic terrorist attacks and nuclear, biological, chemical and radiation catastrophes to the events covered by the law. On the other hand, the version of the bill passed by the Senate Banking Committee in October calls for a seven-year extension and does not include any added threats. The House version would trigger government intervention at $50 million in losses whereas the Senate placed the trigger at $100 million.

The Congressional Budget Office has projected the cost of the House bill at $8.4 billion over the next 10 years, while the Senate version is expected to cost $5.1 billion during the same period.

The National Association of Professional Insurance Agents in Alexandria wants to incorporate provisions from the House version into the final bill. “An adequate backup needs to be provided for these most catastrophic potential events that represent the greatest degree of uninsurable risk,” says Patricia Borowski, PIA national senior vice president.

Bob Hunter, director of insurance for the Consumer Federation of America, believes TRIA is no longer needed unless the additional catastrophic events are kept in the bill. “The goal is to let the private sector handle it,” he says. “I think the private sector can afford to do it without federal backup.”

The White House opposes the House version and has threatened a veto if the final bill includes too many of its additions. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has proposed passing a stopgap, 120-day extension of the law to avoid a last-minute compromise before the deadline.

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