Focus on TRIA will likely postpone action on SMART until the fall
Federal Reserve Board Chairman Alan Greenspan is giving measured support to extension of the Terrorism Risk Insurance Act, another sign that momentum has swung in Washington toward an extension of the legislation.
Another signal of that shift is that the Capital Markets Subcommittee of the House Financial Services Committee has scheduled a hearing for July 27 on TRIA.
Congressional and insurance lobbyists also confirmed that introduction of legislation establishing federal standards for state insurance regulation has been postponed until fall as congressional staff and lobbying energies are focused on drafting legislation to extend TRIA.
One insurance industry lobbyist said the reason for the delay is that “action on TRIA is paramount, and the energy needed to deal with work on the extension is squeezing the oxygen out of action on the bill–the State Modernization and Regulatory Transparency Act, or SMART.”
At the same time, National Underwriter has learned that two ranking members of the committee, Reps. Ed Royce, R-Calif., and Paul Kanjorski, D-Pa., have agreed to introduce an amendment to the SMART legislation that would establish an optional federal charter for life insurance companies.
However, Reps. Mike Oxley, R-Ohio, chairman of the full committee, and Richard Baker, R-La., chairman of a subcommittee, are apparently not supportive, although some members of the Senate Banking Committee are receptive, the sources said.
The SMART bill is opposed by state regulatory groups, including the National Association of Insurance Commissioners and National Conference of Insurance Legislators but strongly supported by the property/casualty industry. However, delay in introducing the bill, especially given the coming battle over a Supreme Court justice, could push action on it into next year, as well as reduce momentum for such a bill.
Regarding TRIA, in comments to the House Financial Services Committee on monetary policy and the state of the economy, Greenspan said some extension of TRIA is needed because the risk of losses from terror attacks is too great for private insurance markets to handle, and some government backing must be involved.
“I think that what Congress has got to do is to recognize it’s a trade-off–that is, so long as we have terrorism that has the capability of a very substantial scope of damage, there is no way you can expect [the] private insurance system to handle that,” Greenspan said.
Government backing is necessary, the Fed chairman continued, but he cautioned Congress to take care not go too far.
“We have to be careful in creating whatever we do in government insurance or reinsurance to make certain we do not go beyond the point which is necessary, because obviously everybody likes free goods…But I don’t see how we can avoid the issue of a significant segment of government-backed reinsurance in this particular area,” Greenspan said.
Jack Dolan, a spokesman for the American Council of Life Insurers, said ACLI agreed with Greenspan’s comments.
“The need for a federal backstop for group life coverage is clear,” Dolan said. “The market has not yet solved the reinsurance problems. We’re optimistic that Congress will recognize that TRIA should cover lives, not just brick and mortar.”
Phil Anderson, executive director of the Group Life Coalition, added, “We agree with the Greenspan Doctrine on TRIA: The government must step in where the reinsurance market doesn’t function and when a risk is unmanageable.”
In addition, Anderson said, “TRIA provides stability and certainty to a troubled market and recoups cost of federal liquidity assistance in a crisis. With group life, it protects the financial security of people as well as buildings.”