Terrorism Risk Insurance Bill Advances
November 18, 2005
Introduced by Capital Markets Subcommittee Chairman Richard H. Baker (LA) on November 14, the legislation is a two-year extension and revision of the Terrorism Risk Insurance Act (TRIA) that narrows the program in anticipation of its being phased out. The Committee overwhelmingly approved the legislation by a vote of 64 to 3.
The bill would: raise the deductibles on all lines of insurance from their current level of 15 percent; increase the co-shares for smaller events while decreasing them for an event with insured losses that are as significant as the World Trade Center bombings or greater; significantly increase the amount of insured losses that would trigger the federal backstop; and build up long-term capital to stabilize the marketplace by allowing insurers to treat a portion of their terrorism premiums as dedicated terrorism capital.
Rep. Baker said, “The legislation I have authored maintains an affordable terrorism insurance marketplace for consumers, while significantly increasing taxpayer protections and efficiencies. Our Committee has held several hearings and has solicited the views of the Treasury Secretary, insurance providers, policy holders, and consumer groups, and I believe my bill provides a comprehensive solution to addressing both their concerns and suggestions.”
Additionally, the legislation would add market reforms to the program to streamline the regulation of terrorism insurance and create a public-private commission to draft specific proposals to establish a long-term pooling terrorism program. Based on the success of the Commission’s recommendation the program could be extended for a third year as a transition.
The Terrorism Risk Insurance Act of 2002 established a three-year risk-spreading program to back up the insurance marketplace for consumers in the event of a terrorist attack. The law covers most lines of commercial property casualty insurance, including workers’ compensation and business interruption for all U.S. risks. Safeguards ensure that only truly catastrophic events trigger any Federal involvement, while continuing to provide equal protection for small and rural insurers. Without legislation, the program is set to expire next month.
Chairman Oxley said, “The extension of TRIA is a necessary next step that will encourage the growth of private sector capacity, provide for greater taxpayer protections, and reduce the role of the Federal subsidy over time. Industry has been slow to respond, so Congress must uphold its duty to the taxpayers by making this program pay for itself.”
The Financial Services Committee has held two hearings this year on TRIA with testimony from the Secretary of the Treasury and a number of private sector witnesses.
Source: House Financial Services Committee