Group life insurance will likely be included in draft legislation providing a continuing federal backstop for terrorism risk to be unveiled by the staff of the Republican majority of the House Financial Services Committee this week.
The decision to include group life is a coup for the Group Life Coalition that has lobbied extensively for the measure, but there will be a price. Because of strong opposition to a simple extension of the current Terrorism Risk Insurance Act by the Bush administration and House Majority Leader Tom DeLay, R-Texas, the committee staff is drafting proposals calling for far less of a federal backstop.
Joel Wood, senior vice president and director of federal government relations for the Council of Insurance Agents and Brokers, was one of three lobbyists who said that group life is likely to be included in the draft plan presented to members this week. “The Group Life Coalition has done an outstanding political job of conveying to members of Congress that if the government decides to provide a backstop for buildings, it should provide a backstop to people as well,” Wood said.
But in confirming the plan, a lobbyist for a small property-casualty insurance company who asked not to be named, raised the potential for a conflict between the life and p-c industries. He explained that the committee staff will not include in its proposals coverage of commercial auto and general liability products, as suggested by the Bush administration in its guidelines of what would be acceptable.
The lobbyist added, “It is an absurdity that group life would be included but that they would scale back the scope of commercial coverage.
“There is no affordability or availability issue with group life–but there is with commercial auto and general liability,” the lobbyist added.
Of equal concern, he said, is what he called the “political decision” to add group life and delete some p-c coverage means that the basic principle behind the first TRIA bill “has become a victim of political expediency.
“The whole idea was providing seamless coverage on all policies,” he said. “Now, these policies will have to be broken apart.”
The proposals to be outlined by staff members at the Financial Services panel represent two distinct plans deemed capable of being supported by the administration and the House Republican leadership, several sources briefed on the plan told National Underwriter.
The committee staff is acting on instructions from Rep. Mike Oxley, R-Ohio, committee chairman, and Rep. Richard Baker, R-La., chairman of the Capital Markets Subcommittee, the sources said.
One would be entirely consistent with proposals from the Treasury Department (high deductibles, would phase out quickly, and would scale back the scope of the program), while the other is a pooling plan that might constitute a “permanent fix.”
This means that any effort to simply extend the current law to permit a more permanent approach to be developed next year is unlikely to get through the House, even though that is the course preferred by committee Democrats.
Such legislation has been introduced in the Senate by Sen. Robert Bennett, R-Utah, and Sen. Chris Dodd, D-Conn. It calls for a simple extension of the current program, which is due to expire on Dec. 31.
One House proposal will call for extension of the current program over two years with far higher deductibles, retention levels and triggers. However, that approach will call for the government to end its backstop after the new program expires Dec. 31, 2007.
One suggestion in this proposal that disappoints insurers calls for a first-year TRIA extension deductible of 20% and a second-year deductible of 25%. It would embrace the Treasury proposal for a $500 million event trigger (as opposed to the current event trigger of $5 million), and an industry retention rising from the current 10% to 20%.
The second proposal calls for creating industry pools funded by individual companies, perhaps on the basis of net written premiums, with the federal government providing a backstop that would gradually end as the funds in the pools grow.
This program would be based on current laws dealing with reinsurance to provide an incentive for companies to build up reserves.
“The committee staff is operating under a two-track approach, planning to introduce both bills to committee members when they return in September to see which proposal gains the most traction,” another industry lobbyist briefed on the proposals said.
Under the pooling program, companies also would have an option to create a second pool that could be used to pay their deductible in case of an attack, a source said.
The latter approach would create a program based on the current TRIA legislation for perhaps a year so the contributions to the pools could provide seed money. This program was first suggested by the Property Casualty Insurers of America in a June white paper.
A third approach suggested by one large insurer that calls for a $25 billion trigger has been rejected by the majority staff of the House Financial Services Committee as politically unrealistic, a source representing the small insurance company said, because it would wipe out many small insurers through even a moderate tragedy.
Rep. Mike Oxley, R-Ohio, has instructed the House Financial Services Committee staff to draft different proposals to provide for a federal terrorism backstop when TRIA expires at year-end.
Flag: TRIA Proposals
Head: What Are The Alternatives?
Staff members at the House Financial Services Committee are drafting proposals that would offer insurers a terrorism backstop beyond the Dec. 31 expiration of TRIA, but under different terms and conditions than in the current law. Among the alternatives under development:
o Extending the current program for two years, but with far higher deductibles, retention levels and triggers, and ending the backstop entirely on Dec. 31, 2007.
o Creating industry pools funded by individual companies, with the federal government providing a backstop that would gradually end as the funds in the pools grow.
o Setting a $25 billion trigger. But opponents say this could wipe out many small insurers, and it reportedly has been rejected.