A U.S. program that backstops insurance companies’ losses from acts of terrorism is set to end after the Senate didn’t extend it.
Efforts to reauthorize the Terrorism Risk Insurance Act for six years fell apart after Senator Tom Coburn, an Oklahoma Republican who is retiring, held up the legislation. Without a renewal, the program will expire Dec. 31.
“It’s unfortunate, but his objection is going to kill TRIA,” Majority Leader Harry Reid, a Nevada Democrat, said last night on the Senate floor. “I’m very sorry about that, but it’s a fact.”
The House passed an extension on Dec. 10 that would reimburse insurers after industrywide losses reach $200 million. The House measure would increase companies’ co-payments to 20 percent from 15 percent and gradually raise the threshold for government involvement.
Congress first passed the backstop after the terrorist attacks of Sept. 11, 2001, when insurers said they were hesitant to sell coverage on New York City office buildings. Coburn’s objection stemmed from concerns over the underlying policy and a plan to set up a regulatory body to supervise insurance agents and brokers (the National Association of Registered Agents and Brokers Reform Act or NARAB).
Taxpayers assume most of the risk while “the insurance industry makes all the money,” Coburn said last night.
The bill passed by the House includes a change to the 2010 Dodd-Frank banking regulation law to exempt agricultural and energy companies from having to post collateral for swaps that are traded directly with banks and not guaranteed at a third- party clearinghouse.
The measure also would require that the Federal Reserve include a governor with community banking experience.
Fifty-seven business organizations, including the National Association of Realtors and Hilton Worldwide Holdings Inc., sent a letter to senators on Dec. 14 urging passage of the terrorism insurance law without other amendments. The groups said the program ensures “economic resiliency in the event of a terror attack.”
Without a reauthorization of TRIA, insurers will have the right to cancel terrorism policies after Jan. 1, Howard Kunreuther and Erwann Michel-Kerjan wrote for Bloomberg Businessweek in the Dec. 9 issue. They are likely to do so for fear of insolvency should a massive terrorist attack take place with no government backup, according to the two academics, who wrote a paper on the law’s impact for the Wharton Risk Center.
Kunreuther and Michel-Kerjan asserted that a lapse could lead to cancellation of events such as the Super Bowl, a contention disputed by the National Football League.
“The Super Bowl will be played,” Greg Aiello, the NFL’s senior vice president of communications, said in a statement reported by news organizations including ABC and CNN.
The legislation is S. 2244.
[The Property Casualty Insurers Association of America (PCI) today issued the following statement expressing its disappointment in the failure to renew the prorgam:
“It is unconscionable that the U.S. Senate would adjourn without finishing their job and reauthorizing a long-term Terrorism Risk Insurance Act (TRIA) 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, PCI’s president and CEO. “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.”]