Washington

The Bush administration is signaling it will give only guarded support for extension of the Terrorism Risk Insurance Act, which expires on Dec. 31.

The industry and Congress were intensely awaiting the mandated report from the Treasury Department for guidance on how Congress should proceed on possible extension.

The Treasury report issued June 30 did not voice much enthusiasm for how the program has worked during its 31-month life. It implied that it will support extension of the program, even for a limited period, only if there is less government involvement going forward.

The report made no policy recommendations regarding group life, which is not included in the present program.

The American Council of Life Insurers responded to the report by saying it was not surprised there were no policy recommendations made regarding group life because Treasury determined after a study that group life should not be covered by the current bill.

“This was a report about how the law worked,” said Jack Dolan, an ACLI spokesman. “Group life was not part of the law. The importance of the report to the group life industry is that the finality of the report begins a serious review of a TRIA extension by Congress. We will work diligently to communicate to Congress and the administration the critical importance of adding group life to the program.”

The ACLI’s argument to Congress and the administration “is that lives, not just bricks and mortar, should be of central importance when Congress crafts an extension to this program,” Dolan said.

In transmitting the report to the House Financial Services Committee, Treasury Secretary John Snow wrote, “It is our view that continuation of the program in its current form is likely to hinder the further development of the insurance market by crowding out innovation and capacity building.”

His letter added, “Consistent with its original purpose as a temporary program scheduled to end on Dec. 31, 2005, and the need to encourage further development of the private market, the administration opposes extension of TRIA in its current form.”

Importantly, the report also outlines several cutbacks in the scope of the current program the Bush administration will demand in any extension if there is one.

One of these is the need “to significantly reduce taxpayer exposure,” the report said.

The administration said it would accept an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as commercial auto, general liability, and other smaller lines, “that are far less subject to aggregation risks and should be left to the private market.”

The current threshold for event size is $5 million. The current retention level for individual insures is 15%, after rising from 10% in the first year of the program and 12.5% in the second year of the program.

The administration also made clear it would take a tough line on litigation in any new bill, a view that the industry said would make extension of the program more difficult because Democrats are likely to balk. Several industry lobbyists noted that demands for tort reform language during talks on the prior bill resulted in it being killed in 2001, in the wake of the 9/11 attack, and delaying ultimate passage of the bill until November 2002.

“It is also important to keep in mind that the program would cover damages awarded in litigation against policyholders following a terrorist attack,” the report said.

It argued that, current litigation rules “would allow unscrupulous trial lawyers to profit from a terrorist attack and would expose the American taxpayer to excessive and inappropriate costs.

“The administration supports reasonable reforms to ensure that injured plaintiffs can recover against negligent defendants but that no person is able to exploit the litigation system,” it explains.

It is our view that continuation of the program in its current form is likely to hinder the further development of the insurance market by crowding out innovation and capacity building,” wrote Treasury Secretary John Snow in a letter to Congress accompanying the report on the Terrorism Risk Insurance Act.