Industry supports terror bill but not all agree with NBCR mandate

At a congressional hearing in Washington, D.C. last month, insurance industry group representatives generally spoke in favor of a bill that would extend the federal backstop for terrorism insurance coverage for another 10 years. The Bush administration opposed this extension of the federal program, arguing no program would be better than a bad one, while insurers themselves split over a new provision mandating nuclear-biological-chemical-radioactive (NBCR) coverage.

Two Massachusetts Democrats — U.S. Rep. Mike Capuano and the Chairman of the House Financial Services Committee Barney Frank — introduced HR 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA). Supporters of the bill, which extends the Terrorism Risk Insurance Act (TRIA) for 10 years, contend it will spur the development of a private market for terrorism risk insurance.

TRIREA would extend TRIA for 10 years with current co-payments and deductibles for conventional terrorism acts as well as expand TRIA’s “make available” requirement to include NBCR coverage.

It would also change the law’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; and continue to require studies of the development of a private market for terrorism risk insurance.

Not all industry representatives agreed on all aspects of the bill, however, notably the requirement that insurers make NBCR coverage available on the same terms and conditions as “conventional terrorism” coverage.

Agents back the plan

Still, two leading insurance agent trade groups, the National Association of Professional Insurance Agents and the Independent Insurance Agents and Brokers of America, both support a long-term extension of the terrorism insurance act and both see the need to address NBCR coverage in the bill.

Sharon Emek, a managing director and partner at the CBS Coverage Group, a regional agency with locations in New York City, Plainview, Saratoga and West Hampton Beach, N.Y., spoke to the subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on behalf of the IIABA.

“The current public-private partnership created by TRIA, and extended in TRIEA, has worked well and generally as intended, allowing businesses across America to continue operating and growing, and preserving jobs in the process,” Emek stated in her testimony.

Emek said IIABA believes that the 10 year extension of the federal backstop is a “reasonable length given current market capacity.”

Emek also pointed out that even though NBCR losses would stem from “the most catastrophic types of terrorist attacks,” currently there is little coverage available in the marketplace for such events, other than in statutorily mandated lines such as workers’ compensation. There is essentially no reinsurance capacity for NBCR losses, she added.

No PIA representative spoke to the subcommittee, but on its Web site, PIA expresses its support for “a long-term mechanism for terrorism coverage to ensure the viability of the existing domestic insurance market.”

The Bush administration, through Treasury Assistant Secretary for Financial Institutions David G. Nason, opposed HR 2761. Nasson told the subcommittee that TRIA should be phased out in order to stimulate private sector participation in providing terrorism risk coverage.

Nason said the Treasury would support an extension only if it assured that the program remain temporary and short-term; private sector retentions are increased; and there is no expansion of the program.

Without those “critical elements,” the Treasury department would be unwilling to support an extension of the Act. “In Treasury’s view, from both a market and economic perspective, it would be better to have no TRIA than a bad TRIA,” Nason stated.

I.I.I. weighs in

But insurers, even though some don’t like all the provisions, argued that the extension is needed for the economy and government to function properly.

“Implementation of a long-term terrorism risk insurance program is an essential component of the nation’s effort to protect the financial homeland,” said Robert Hartwig, president and chief economist of the Insurance Information Institute in a statement.

Hartwig said the program’s benefits will be felt immediately across all economic segments but stopped short of praising all elements of the bill.

Hartwig said the provision that compels insurers to cover NBCR risks poses a concern. He pointed out that private markets “have little to no experience insuring against these risks.”

Hartwig was not alone in questioning the NBCR mandate.

Warren Heck, chairman and CEO of Greater New York Mutual Insurance Co., testifying on behalf of the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America, favored the long-term extension of TRIA but said the bill should not mandate that insurers provide NBCR coverage.

“Attacks utilizing weapons of mass destruction (NBCR) are the ultimate in uninsurable events and they can have qualitatively different consequences than non-NBCR attacks,” Heck told the subcommittee.

The American Insurance Association (AIA), on the other hand, praised the NBCR provisions. AIA President Marc Racicot, said, “Creating a long-term program which addresses the NBCR and conventional terrorism risks brings much needed stability and certainty to the market, without which long-term investment, economic development, and growth are clearly and substantially threatened.”