Industry Told TRIA Won’t Be Renewed Until 2014

The property/casualty insurance industry should not count on Congress reauthorizing the federal terrorism reinsurance program this year or in time for January renewals, according to a key insurance lobbyist working on the issue on Capitol Hill.

If Congress agrees to extend the terrorism insurance backstop, known as TRIA, it will probably not do so until late next year when the program is scheduled to expire, said Leigh Ann Pusey, president and CEO of the insurer trade group, the American Insurance Association.

Pusey said Congress has a history of “running right up against the deadline” on TRIA and she expects the same will happen again. The current program expires Dec. 31, 2014.

“I am not optimistic we will have it extended in time for January renewals,” she said. But she said she thinks it will eventually be extended.

“I am optimistic it gets done in 2014 but not this year because of a crowed agenda and the history of this issue” of last-minute action, Pusey told reporters during a press availability at AIA headquarters in Washington, D.C.

Thus, insurance carriers and brokers will have to discuss the potential expiration of terrorism coverage and the need for exclusions with their accounts that come up for renewal starting in late 2013, as they have had to do in the past years when Congress waited until the deadline to renew TRIA.

The original federal Terrorism Risk Insurance Act (TRIA) was enacted after the Sept. 11, 2001 attacks to allow the federal government and the insurance industry to share losses in the event of a major terrorist attack. The current version of TRIA is officially the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA).

Pusey said the Boston Marathon bombing in March has raised questions and the level of interest in Washington over TRIA and that supporters of the program face a political battle for a number of reasons.

One reason is that Congress has a “crowded agenda and other priorities” right now. A key player, House Financial Services Committee Chair Jeb Hensarling, R- Texas, is focused on housing issues this year, she said.

Another obstacle is that there are many new members of Congress— almost half in Congress and on the House committee were not around for past TRIA debates and have never voted on the program. These members have questions and need to be educated about TRIA, according to Pusey.

A third obstacle, Pusey said, is the segment in Congress that is “philosophically hesitant” to back government programs where they believe private markets can do the job. Among them is Hensarling. “He is challenging us to make the case for the program and that’s a fair thing to do,” the AIA executive said.

Even the Treasury Department has questioned the need to extend TRIA and it is due to issue a new report by the end of September that could influence the debate.

Pusey said that to succeed in this political climate supporters must distinguish TRIA from other government programs that are frequent targets of criticism. She said lawmakers need to know that TRIA is designed so that the insurance industry has “significant skin in the game” due to required high retentions and also that taxpayers are protected because the government must recoup monies up to $27.5 billion if it ever has to pay out anything and may recoup even more. Also, TRIA only covers losses after private insurers have paid $100 billion.

She argued that TRIA should be extended because it has “worked well for the U.S.” and helped provide economic stability and an orderly economic recovery after Sept. 11, 2001. She said the federal program continues to make it possible for private insurers to write terrorism coverage below the $100 billion threshold at which the government would be tapped.

“It [TRIA] is about economic stability and orderly economic recovery,” she said.

Pusey said that while there is talk of private capital available to enter insurance, this is not coming into the terrorism insurance space because, unlike natural catastrophes, manmade terrorism risk “cannot be modeled.”

The construction, banking and real estate interests generally support renewal of TRIA along with the insurance industry.

The conservatives in Congress who are resistant to TRIA have an unusual ally in the Consumer Federation of America. CFA’s insurance chief, J. Robert Hunter, former Texas insurance commissioner, has criticized TRIA as unnecessary.

Hunter has said TRIA amounts to a $7 billion subsidy that is helping turn P/C insurers into “nervous nellies” that are afraid to underwrite difficult risks like terrorist attacks. He said the $7 billion figure is what the industry would have to pay in premiums for the reinsurance it is getting for free from the government.

Industry insiders dismiss Hunter’s $7 billion figure as “bogus” and his argument as anti-consumer.

Dr. Robert Hartwig, president of the industry’s Insurance Information Institute (III), said the TRIA program has cost taxpayers almost nothing and that not renewing TRIA would hurt consumers because it would dry up the private market and leave businesses without coverage.

Pusey said that early proposals for TRIA had insurers paying upfront for the backstop provided by TRIA but lawmakers rejected that in favor of the model that has the government recouping monies after an event.

Pusey agreed with Hartwig. “The benefit of TRIA is to the economy, not the industry,” Pusey said.