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TERRORISM INSURANCE

THE ISSUE IS: Whether the Terrorism Risk Insurance Act of 2002 (TRIA) should be: allowed to sunset or extended beyond December 31, 2005.

IT'S IMPORTANT BECAUSE: Due to the tragic events of September 11, Congress overwhelmingly passed he Terrorism Risk Insurance Act of 2002 (TRIA). TRIA created a mechanism under which the federal government would provide a federal reinsurance backstop to commercial insurers in the event of another terrorist attack. TRIA is scheduled to sunset on December 31, 2005.

TRIA was intended to allow the markets three years to develop adequate terrorism insurance products. However, almost three years after the attacks, predicting how, when and where future terrorist attacks against the United States will be launched remains speculative. Acceptance or rejection of TRIA coverage appears to be based on the insureds' perception of their terrorism risk. However, another attack in the United States could change perceptions of risk leading to a shortage of coverage based on today's usage.

The industry has formed a coalition to push for the extension of TRIA for two more years. It argues that it is necessary because insurers are currently writing policies that will be in-force through 2006 and they need TRIA in place in order to appropriately price those policies. NAMIC is very engaged in the TRIA issue in the following ways: 1) The NAMIC Board endorsed federal legislation to extend TRIA for two years beyond its scheduled sunset and authorized funding for a study on the economic effects of federal participation in terrorism risk by Glenn Hubbard, former chairman of the Council of Economic Advisors; 2) NAMIC included the discussion of the TRIA issue in its Congressional Contact Program meetings on Capitol Hill in 2004; 3) NAMIC was part of an industry coalition that testified at the U.S. Senate Banking Committee's oversight hearing on TRIA on May 18, 2004; 4) NAMIC joined with the insurance industry in helping to obtain congressional co-sponsors for a letter to Treasury Secretary John Snow in favor of extending TRIA; 5) NAMIC issued a press release in favor of legislation, H.R. 4634, to extend TRIA introduced on June 22, 2004 by Reps. Richard Baker (R-LA), Sue Kelly (R-NY), Eric Cantor (R-VA) and Pete Sessions (R-TX); 6) NAMIC joined in an industry letter dated June 25 to members of the House in favor of extending TRIA; 7) NAMIC helped to persuade Treasury extend the "make available" provision in June, 2004 although by statute it was not required to make its decision until September 1, 2004; 8) NAMIC established a TRIA Working Group which met September 7-8, 2004; 9) NAMIC was represented on a panel devoted to TRIA at the State Insurance Trade Association meeting in New York City on October 11, 2004 along with N.Y. Superintendent of Insurance, Greg Serio and industry representatives.

In the 108th Congress two bills were introduced in addition to H.R. 4634 mentioned above: H.R. 4772, the Terrorism Risk Insurance Program Extension Act, introduced by Reps. Michael Capuano (D-MA) and Steve Israel (D-NY); and S. 2764, the Terrorism Risk Insurance Extension Act, introduced by Senators Chris Dodd (D-CT) and Bob Bennett (R-UT).

Treasury is scheduled to report to Congress by June 2005 on the TRIA program and hearings will begin in March 2005 in the Senate Banking Committee and the House Financial Services Committee.

NAMIC POSITION: NAMIC supported the concept of a federal backstop for terrorism insurance as a response to an extraordinary national crisis. NAMIC strongly supports legislation to extend TRIA for two years beyond the December 31, 2005, sunset.

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