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THE ISSUE IS… Due to the tragic events of September 11 - and the ongoing threat of terrorist attacks, Congress recognized the need to establish a mechanism to assure the financial capacity to pay claims resulting from terrorism.

IT’S IMPORTANT BECAUSE… The September 11 attacks were of a nature and scope unlike any other catastrophe in world history, leaving deep concerns about the insurance industry’s ability to provide terrorism coverage. Congress acted to address this situation with the enactment of the 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 was scheduled to sunset on December 31, 2005.

TRIA was intended to allow the markets three years to develop adequate terrorism insurance products. However, almost four 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.

With TRIA set to expire, NAMIC made an extension of TRIA one of its top priorities. While everyone in Washington agreed that a federal reinsurance backstop must be in place by the time TRIA expires, it was the solution that was still being disputed. From the beginning of 2005 most Democrats in both the House and the Senate advocated a straight two year extension of the current TRIA program. In the Senate, Senators Dodd and Bennett reintroduced legislation from the 108th Congress as S. 467 (with 30 co-sponsors) and in the House Rep. Capuano re-introduced his bill as H.R. 1153 (with 18 co-sponsors).

While Democrats came out early in support of a straight two year reauthorization, most Republicans including House Financial Services Committee Chairman Mike Oxley (R-OH) held off until the much-awaited Treasury report was issued at the end of June. The Treasury study did highlight the success of TRIA, however, the summary and recommendations were not favorable for a straight two year extension. Rather, Treasury advocated extending TRIA only if major changes were made to the current program, including much higher trigger levels and deductibles that are unacceptable to NAMIC.

With the Treasury report coming out so strongly against a straight two year extension, both the House and Senate began working on bills that would provide an extension, while at the same time, increasing the companies’ share of responsibility. On November 16th, after months of drafting and negotiations, both the House Financial Services Committee, and the Senate Banking Committee passed their own versions of TRIA.

While both bills provide a two year extension, the similarities end there.

The House bill, H.R. 4314 passed the House Financial Services Committee by a 64-3 vote and it uses a so called “silo” approach, in which deductibles vary based on what kind of an event occurs. Under this approach, the House version would now cover property, casualty, workers’ compensation, group life, and Nuclear, Biological, Chemical and Radiological events (NBCR) - insurers would be required to offer NBCR. Another area of change is the insurer co-share which is currently at 10%. Under this proposal the co-share would vary from 5%-20%, with smaller events having a larger co-share, and larger events having a smaller one. One of the biggest changes would be the event trigger. Currently, the trigger is at $5 million, this level would be increased next year to $50 million, and then $100 million in 2007. Finally, the House version would also insure taxpayer protection, as any government payouts, would be recouped through a 3% company surcharge on policyholders.

The Senate bill, S. 467 passed the Senate Banking Committee and the Senate by unanimous consent. S. 467 would also raise the trigger levels to $50 million in 2006 and $100 million in 2007. The insurer retention level would rise from the current 15%, to 17.5% in 2006, and 20% in 2007. In addition, the co-share, would stay at the current 10% in the first year, but would rise to 15% in year two. Of great importance to NAMIC is the Senate decision to eliminate several covered lines such as farmowners multi-peril in the TRIA program. NAMIC has argued since the inception of TRIA that terrorism coverage in conjunction with farmowners multi-peril should be excluded, as it has experienced a low take-up rate and re-insurance is either unavailable or priced at too high a level.

On December 16th, just days before recessing for the year the House and Senate were able to meld their two differing TRIA extension bills. The legislation extends TRIA for two years and scales back the scope of coverage. Commercial auto, burglary/theft, surety and professional liability will no longer be covered under TRIA. The bill also does not include coverage for NCBR, a provision in the House-passed bill that NAMIC opposed. The bill increases the industry's deductible from 15% this year, to 17 1/2 % in 2006, and 20% in 2007. The event trigger will be raised under this legislation from the current $5 million in insured losses, to $50 million in 2006 and $100 million in 2007.

The legislation provides for a "President's Working Group" with a very limited mandate to review whether Group Life and NCBR should be included in TRIA. NAMIC is currently working with the P/C industry and will work with Members of the House and Senate to created a permanent public/private partnership on terrorism coverage when the TRIA extension expires December 31, 2007.

NAMIC POSITION… NAMIC commends Congress for passing a short term extension of TRIA in 2005. NAMIC continues to work with Congress to establish a long term limited private partnership that will insure continued availability and affordability for terrorism coverage.

Posted: Wednesday, March 01, 2006 12:00:00 AM. Modified: Tuesday, July 11, 2006 3:27:27 PM.

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