Insurers Warn of Impact if TRIA Falls
By Arthur D. Postal
InsuranceNewsNet
WASHINGTON – Insurance industry officials have a ready answer for the question raised by some citizens and members of Congress on reauthorization of the Terrorism Risk Insurance Act: Why should American taxpayers foot the bill for insurance companies?
“Every member of Congress will see a visible impact at home in their district [if it is not reauthorized],” answers Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies.
“Taxpayers are far more protected by the TRIA program than they would be without it,” Grande said.
He said that on Jan. 1, most commercial properties will no longer be covered for an act of terrorism.
“Absent TRIA, coverage will be difficult to obtain and the amount of uninsured assets will rise,” Grande said. “We all know the first words that will be spoken should an unthinkable act of terrorism occur – ‘we will rebuild’ – and without coverages, that means taxpayers footing the bill.”
Grande also said that, even without an attack, “the effects of a lapse would be felt in slowed or cancelled development, the loss of construction and other jobs, and the increased costs of coverage for terrorism and workers compensation for employers across the country.”
Leigh Ann Pusey, president and CEO of the American Insurance Association, adds that “TRIA is a public-private partnership that’s been vital to our national defense and economic security.”
She said that “TRIA leverages the federal government’s national defense obligation to speed economic recovery following an attack and to foster a well-functioning private terrorism insurance marketplace that protects U.S. taxpayers and businesses.”
Pusey also defended the legislation, saying that the compromise legislation the Senate left on the table when it suddenly departed Tuesday night “will further increase the private sector’s 'skin in the game' while providing policyholders and businesses the certainty they need to help grow our nation’s economy.”
Pusey said that TRIA “has long enjoyed strong bipartisan and bicameral support.”
Pusey said that under the six-year extension in the bill, starting in 2016, there would be phased-in increases to the program’s trigger (raising it from $100 million to $200 million in annual aggregate insured losses) and the insurer co-share (raising it from 15 percent to 20 percent).
In addition, she said, the amount that the government will recoup increases from the current $27.5 billion to $37.5 billion. In the sixth year, recoupment will be the lesser of $37.5 billion or the three-year average of the sum of insurer deductibles for all insurers participating in the program, Pusey said. “Finally, the rate of recoupment will increase from 133 percent to 140 percent.”
Pusey said in a letter to The Wall Street Journal Friday, criticizing an editorial that said TRIA should be phased out, that “more than 60 percent of U.S. businesses rely on the terrorism risk insurance marketplace, which is made possible by the federal backing of TRIA.”
She also said that the original 2002 version of the law has not been renewed without changes. “Both reauthorizations since have included stronger taxpayer protections and an increased financial burden for the private sector,” Pusey said
She noted “that more taxpayer protections are included this time, too,” adding that “billions of private-sector dollars would have to go out the door before the government would step in to provide any financial support.”
In fact, Pusey said, “the primary responsibility for financial recovery under TRIA is placed on the private sector in all but the most catastrophic of events. The partnership established by TRIA also enables the government to recoup any losses. TRIA allows the private terrorism insurance market to function while minimizing taxpayer risk.”
Marty DePoy , a spokesman for the Coalition to Insure Against Terrorism (CIAT), which represents banks, real estate companies, hotel and motel owners and holders of commercial mortgage-backed securities, added that failure of the Senate to act constitutes “a bipartisan failure; the 113th Congress has let down American workers, American businesses and jeopardized U.S. economic and national security.”
Insurance rating agencies Standard & Poor’s and Fitch are taking a wait-and-see attitude on the implications of Congress’s decision to go home this week without acting on reauthorizing the Terrorism Risk Insurance Act (TRIA), implying that pressure will be strong on Congress to act quickly to renew the program when it restarts work Jan. 5.
“We had already anticipated the possibility that reauthorization would not take place until early 2015,” Standard & Poor’s said in a statement Thursday.
S&P analysts cited a number of reasons for its caution in not taking negative ratings action on securities and insurers with terrorism risk.
Among these are signs that “insurers are striving for underwriting stability during the short term, including Jan. 1, 2015, policy renewals, muting concerns about market disruption [about immediate TRIA reauthorization],” S&P analysts said.
Arthur D. Postal has covered regulatory and legislative issues for more than 30 years in Washington, D.C. He can be reached at [email protected].
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