WASHINGTON—Hundreds of trade groups have signed letters in support of the federal terrorism insurance backstop in an effort to pressure Congress to act now–before mid-term elections potentially change the political landscape in Washington.
An industry official, who asked not to be named, said it is likely that before recessing–likely by September 19–Congress will only pass a continuing resolution aimed at keeping the government running through mid-December, with no action on terrorism risk insurance legislation until after the mid-terms.
They will do so despite the fact that a letter sent to all members of the House of Representatives signed by some significant players in commerce and industry urged lawmakers to “move swiftly” to pass legislation extending the current version of the Terrorism Risk Insurance Act (TRIA).
Additionally, the Coalition to Insure Against Terrorism (CIAT), which represents the business insurance policyholders as well as the real estate, manufacturing, utility, construction, transportation, entertainment and retail sectors, released a statement.
“With only a handful of legislative days remaining before the November elections, Congress must move quickly to approve legislation that will ensure TRIA remains in place for years to come,” CIAT spokesperson Martin DePoy said.
“There is no homeland security without economic security,” DePoy said. He said TRIA “helps undermine terrorists who seek to weaken or destroy our way of life by ensuring our economy can more easily recover in the event of an attack.”
“We are telling members of the House that is critical that a bill be passed this month so that we can get a long-term bill this year,” as stated by one industry lobbyist who asked not to be quoted. The reason, he said, is that lame-duck sessions of Congress are “notoriously unpredictable, and we are trying to take the unpredictability out of the equation.”
The Senate overwhelmingly passed legislation reauthorizing the current version of TRIA for seven years.
CIAT said the Senate “has done its job and passed a bipartisan proposal to extend TRIA; it is now up to the House to do its part and get a final bill to the president before time runs out.”
However, conservatives in the House Financial Services Committee, led by Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, want to delay action until after the mid-terms, when it is predicted that Republicans will occupy a majority of the Senate, and a more conservative Congress would support efforts to phase out the current federal terrorism backstop over five years and replace it with one that will provide a backstop only for nuclear, biological, radiological, and/or chemical (NBCR) events.
The letter noted that President Bush’s Council of Economic Advisers estimated that over 300,000 jobs were lost prior to initial enactment in 2002 of TRIA. The program has been renewed twice, the latest in 2007 for seven years.
Congress reconvened September 8 after a five-week summer recess, but lawmakers will be in Washington for perhaps only two more weeks before recessing in order for members to campaign during mid-term elections.
The insurance industry fears that the odds for reauthorization of TRIA in an acceptable form will drop precipitously if the House fails to act on a bill before lame-duck sessions. A continuing resolution is unlikely to include language dealing with TRIA, Washington analysts have said.
Robert Hartwig, economist and president of the Insurance Information Institute said in the absence of TRIA, terrorism risk insurance would be less available to businesses of all sizes. “Without the federal government’s insistence that insurers make terrorism coverage available to all who want it, terrorism risk insurance policies will be more costly and/or limited in scope,” he warned. The federal backstop “is a critical part of the U.S. economy’s security infrastructure and would ensure a swift recovery in the event of significant terrorist attack.”
Law firm Steptoe & Johnson said the the House bill includes an optional limited opt-out for small insurers, exempting small companies from the mandatory offer requirement provided they prove it would cause financial hardship to meet the higher trigger requirement.
The lawyers at Steptoe said that, “This would put small insurers in a difficult position – either offer terrorism coverage subject to the higher triggers, or prove financial duress.”
The lawyers note that the incentive to opt out is high, however. “Reports indicate that the higher trigger could cause hundreds of medium and small insurers to pay out more than 10 perfect of their surplus after a terrorist attack, subjecting them to ratings downgrades,” the Steptoe & Johnson lawyers said in their evaluation of the two bills.
“This has middle market commercial policyholders concerned that fewer insurers offering terror coverage will negatively affect availability and affordability of coverage,” the note said.
The letter sent yesterday said that 9/11 left the insurance industry “unable to model frequency, location, type and the potentially devastating scale of modern terrorism.”
As a result, insurers were forced to pull out of the marketplace, and in the months following the attacks, the inability of insurance policyholders to secure terrorism risk insurance contributed to a paralysis in the economy, especially in the construction, travel and tourism, manufacturing, and real estate finance sectors, the letter said.
“The American business community needs certainty so that it can continue to focus on its primary mission of creating jobs,” the letter said. “The undersigned organizations urge Congress to reauthorize this important program without delay.”
Arthur D. Postal is a veteran reporter covering Washington, D.C. and federal insurance regulation, with more than 30 years of experience in financial journalism.
