Hearings suggest greater flexibility
By ARTHUR D. POSTAL AND Matt Brady
The Bush administration, in the wake of the transportation system attack in London, is softening perceptibly its stance on renewal of the Terrorism Risk Insurance Act, which expires Dec. 31.
In testimony before two congressional financial services committees on July 13 and July 14, Treasury Secretary John Snow said for the first time that the administration wants the legislation extended, albeit with revisions that shift more financial responsibility to the private sector.
“Nobody is talking about ending that backstop,” he said. “What we’re talking about is revamping. The issue is can we make some improvements to the program to give the private sector more of a role to play.”
And, even though the current legislation doesn’t include any backup for group life insurance, that industry, now aligned with property/casualty insurers and far better organized, stands a much better chance of inclusion in any new legislation.
For example, in the July 14 hearing on the issue before the Senate Banking Committee, Sen. Elizabeth Dole, R-N.C., called in her opening statement for legislation providing long-term government involvement in terrorism reinsurance. And, Sen. Dole added, “This solution should include group life insurance.”
The day before, Democrats on the House Financial Services Committee called for the inclusion of group life insurance in any extension of TRIA even though the Treasury Department made no such recommendation in its report on the existing program issued June 30.
In his opening statement at the July 13 House hearing, Rep. Barney Frank, D-Mass., the ranking member of the panel, said that “to have terrorism reinsurance that covers buildings, not life, would be this committee’s equivalent to the neutron bomb, which kills people but leaves buildings untouched.”
Echoing those sentiments was Rep. Paul Kanjorski, D-Pa. “In debating any plan to extend TRIA, we ought to work to incorporate group life insurance,” said Rep. Kanjorski, who is the ranking member of the key Capital Markets Subcommittee. “These products, after all, have characteristics similar to commercial property/casualty insurance in that there is often an excessive concentration of risk within a small geographic area.”
Neither Reps. Frank nor Kanjorski pursued the issue any further while questioning Secretary Snow.
However, Rep. David Scott, D-Ga., who represents a district in Atlanta, questioned the secretary whether group life coverage should be included, especially in light of the recent attacks in London that at press time killed at least 53 people but caused relatively little property damage.
In response, the secretary explained that the original TRIA legislation required the Treasury to determine whether or not group life should be a part of the program based on the availability of coverage in the primary and reinsurance markets. Treasury, he added, determined that it was not necessary to include group life because while there is a scarcity of reinsurance, there is fairly wide availability of primary group life coverage. As Congress now looks to extend the TRIA program, he said that the situation remains as such. “We’re in that same position,” Snow said.
Overall, Snow appeared to avoid taking a hard line on recommendations made by Treasury for extending the TRIA program. Although he said in a letter accompanying the Treasury’s June 30 report that the administration would “only accept” a TRIA extension bill that included several changes, most notably a dramatic increase of the threshold for government intervention to $500 million, he indicated that the number was, in fact, open to negotiation.
“We can debate,” the $500 million figure, he said. “This is a best judgment.” Additionally, when asked if the threshold might be excessive in dealing with smaller attacks, such as those carried out against the people of London, he responded by saying that the $500 million would be counted against aggregate annualized damages, meaning that the damages of several small attacks occurring throughout the year would be combined to determine if the TRIA program should be activated.
The secretary also was told that the administration could face considerable opposition to its recommendation that the TRIA extension legislation include “reasonable” legal reform provisions.
“I am very concerned that such a posture could once again stall legislative efforts, as it delayed consideration of the original law,” said Rep. Kanjorski. Later in the hearing, he cautioned Snow that if the administration seeks to make the TRIA legislation an engine for tort reform, “that’s dead on arrival.”
Statements by Rep. Mike Oxley, R-Ohio, chairman of the House Financial Services Committee, and Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, also were supportive of renewal.
Rep. Oxley’s comments were much stronger. He promised “to deliver a bill on the House floor by the end of this year.” Sen. Shelby’s statement was more constrained. “Beyond today’s hearing, I am looking forward to working with my colleagues to design a targeted, short-term program that permits a transition away from a taxpayer-supported system,” Shelby said.
“In the end, I believe the best way to deal with the challenges we face is to encourage innovation along all fronts and to draw upon the great strengths of our market-based economy,” Shelby added.
That is consistent with the approach outlined by the Treasury Department in its June 30 statement.
A report to members prepared by the Council of Insurance Agents and Brokers, Washington, after the July 13 hearing before the House Financial Services Committee says “Snow’s verbal testimony today and response to questions was extremely conciliatory and almost completely at odds with the utterances of Treasury officials in the past two weeks, at least in tone.”
The CIAB report adds, “Repeatedly, Secretary Snow said that it is his desire to work with Congress to develop an acceptable approach for a more limited federal backstop–one that has higher deductibles, industry retentions, provides greater “taxpayer protection,” and provides legal reforms.”
The Coalition to Insure Against Terrorism, Washington, which is headed by the real estate investment industry, had a similar view. Its report cites comments by Secretary Snow that “No one here is talking about ending the program.” The CIAT added, “The Secretary spoke of using the existing Terrorism Risk Insurance Act as a model and moving toward greater private sector responsibility.”
The CIAT explained that “In making clear that he supports revamping–not terminating–the backstop [what he characterized as making a good program better], Snow suggested an extension of two years.”
Insurance industry officials caution that the shape of the legislation may not be known until mid-November because of the press of other business.
“Nobody is talking about ending that backstop. What we’re talking about is revamping. The issue is can we make some improvements to the program to give the private sector more of a role to play.”== Treasury Secretary John Snow
“To have terrorism reinsurance that covers buildings, not life, would be this committee’s equivalent to the neutron bomb, which kills people but leaves buildings untouched.”–Rep. Barney Frank, D-Mass.
“In debating any plan to extend TRIA, we ought to work to incorporate group life insurance These products, after all, have characteristics similar to commercial property/casualty insurance in that there is often an excessive concentration of risk within a small geographic area.”–Rep. Paul Kanjorski, D-Pa.