Self-Insurance Institute of America, Inc.
May 15, 2014 – The Self-Insurance Institute of America (SIIA) has learned that the House of Representatives will soon move forward with legislation to extend the Terrorism Risk Insurance Act (TRIA), likely before the August recess. Draft language being circulated with stakeholders contains positive content, while portions will need more input from the industry to satisfy market demand.
In a meeting with the House Financial Services Committee, the SIIA supported Coalition to Insure Against Terrorism (CIAT) expressed enthusiasm with the committee for taking up this legislation. The coalition reiterated the urgency to reauthorize the program and the impact on finance, real estate, and insurance should the program expire at the conclusion of the 113th Congress.
SIIA was able to obtain excerpts from the bill text and confirmed that while this draft does not specifically address the use of captives, sources on Capitol Hill have signaled that future language will likely include mention of captives. Preliminary reports indicate that it will allow the Treasury Department to draft guidelines that would exclude single-risk TRIA-only captives that the Secretary determines were created solely to avoid the requirements of the Act. SIIA will update membership should captives be included in future drafts.
SIIA and other stakeholder groups have identified specific concerns with the draft legislation as follows;
• The committee’s proposal would amend the Annual Program Cap from $100 billion to $75 billion. The existing cap of $100 billion for combined liability of the insurance industry and the federal government means that for any aggregate losses above that number, policyholders already are left unprotected. Reducing the cap by 25% means that such rationing of losses will occur even earlier. In effect, policyholders are rendered powerless to properly insure their assets.
• The outline would split the program by type of event into NBCR and non-NBCR terrorism. After the first year of the 3-year extension, for non-NBCR events, the outline would increase the program trigger over two years to $500 million, and increase the individual insurer co-share to 25% for every dollar up to the annual program cap (which is to be reduced).
• The principal purpose of TRIA is to increase private insurer capacity for terrorism coverage, addressing a market failure where commercial policyholders could not obtain terrorism insurance because insurers would not offer it. By requiring insurers to make this coverage available as a condition of having access to the TRIA backstop, the TRIA program succeeded in creating far greater terrorism insurance capacity for policyholders in the market.
Permitting small insurers to access the TRIA backstop for the terrorism coverage they write, but not requiring them to offer it, will distort the market and restrict capacity — particularly for the smaller main street businesses that are the primary policyholder base for the smaller insurers.
• The proposal would alter the current structure of recoupment. First, instead of the fixed $27.5 billion, the aggregate marketplace retention amount would be set at the sum of insurer deductibles for the preceding program year for all participating insurers, currently about $37.6 billion, and would rise (or fall) with premium growth (or decline) in future years. Second, the proposal would also increase the recoupment from 133% to 150% of actual federal outlay.
• The proposal would extend the program by only three years. Financing is typically done on a much longer term than three years, and therefore the extension needs to be longer in order to truly eliminate the impact that TRIA’s potential expiration is already having on the economy.
As SIIA has previously reported, the Senate Banking, Housing, and Urban Affairs Committee is also considering reauthorization and likely will mark-up a Senate bill within the next couple of months. Chairman Tim Johnson (D-SD) is eager to reauthorize the program and has put pressure on the House to take action on legislation pending in the Financial Services Committee. Ranking Member Mike Crapo (R-ID) has indicated his support for reauthorization, as well. SIIA will continue to work with the CIAT and the Congress to pass an effective extension.
For more information on TRIA or SIIA’s lobbying efforts, contact SIIA Government Relations Coordinator Kevin McKenney at 202/463-8161 or via email at firstname.lastname@example.org.