Washington

Republican staffers on the House Financial Services Committee are drafting legislation that would take an entirely new approach to extending the Terrorism Risk Insurance Act, creating a “silo” system that would base a federal backstop on the insurability of the risk.

The new concept is totally different than extension guidelines suggested by the Bush administration and draft legislation prepared by the committee some months ago.

One of the business lines included in the proposal or “scenarios” being discussed by industry lobbyists and committee staff is group life, an industry official confirmed.

Levels of retention differ under the plan being developed. For example, losses from terrorist attacks through nuclear, chemical, biological and radiation devices would be mostly covered by the government because it is an uninsurable risk. Other coverages, such as workers’ compensation, would get some level of federal reinsurance, while some lines might receive no government coverage.

No decision has been made as to the level of retention group life insurers would have to accept, the source said.

Moreover, the Treasury Department would be left some discretion as to retention levels, another source said.

Timing remains an issue. Lobbyists for most property-casualty trade associations and companies were briefed on the new approach by committee staffers early last week and were told that action on a TRIA extension is unlikely in the House before the week of Nov. 14. TRIA is due to expire on Dec. 31.

At a flood insurance hearing in the Senate Banking Committee last week, it was made clear by Republican senators that action on an extension is a priority in that body, but timing and substance was not discussed.

Dennis Kelly, a staff official at the American Insurance Association, confirmed that Republican staffers on the committee are considering this new alternative. “The silo approach is one of the ideas we have been discussing with the Hill,” he said. “It is one idea for making the program better. What is vitally important is that Congress enacts legislation that is workable for policyholders and insurers before the current program expires.”

Kelly said the silo approach “is appealing because it is a way to have the retention levels better reflect the risk.”

While Republicans drafted–but did not introduce–legislation that would raise the potential cost of a terrorist attack to insurers exponentially, Democrats are supporting legislation that calls only for a simple two-year extension of the current legislation.

A lobbyist for one insurer involved in the discussions, who asked that his name not be used, called the silo approach “an interesting idea,” but wondered: “Do they really have the time to negotiate something that complex this late in the year?”

This lobbyist said the silo proposal would “require the full-time attention of members of Congress”–something not available this late in the year because “there are a lot of competing issues on the table.”

At the same time, the lobbyist said, “it might be the long-term answer for TRIA.”

However, this lobbyist is now optimistic TRIA will be renewed in some form. “It is a political imperative that the Republicans show they can get something done,” the lobbyist said. “And since renewal of TRIA has bipartisan support, it is an easy way for the Republicans to show they can govern.”

The new plan is designed to respond to intense criticism of earlier TRIA extension drafts from both large and small carriers. The new approach would alleviate concerns of smaller insurers by incorporating so-called “catastrophic coverage” principles resurrected some weeks ago by Allstate. That concept calls for a layered approach to dealing with catastrophic losses.

That Congress considers extension of TRIA in some form a priority was confirmed at last week’s flood hearing before the Senate Banking Committee. Sen. Robert Bennett, R-Utah, said at the hearing that he was “pleased” that Majority Leader William Frist, R-Tenn., had placed extension of TRIA “on his list of items that need to be addressed before we adjourn.”

Bennett’s comments were made at the hearing on flood issues as part of his effort to determine when the Senate would act on the issue. Bennett and Sen. Chris Dodd, D-Conn., have introduced legislation that would extend the current program for two years while Congress debates at its leisure a more permanent solution to cover terrorism risks. His bill would also extend coverage to group life insurance.

In response to Bennett’s inquiry, the committee chairman, Sen. Richard Shelby, R-Ala., said “we’re coming along” on the issue, but could offer no specific timetable as to when TRIA would be taken up. “We’re going to address that,” he said.

Sen. Elizabeth Dole, R-N.C., noting the “importance” of TRIA, also voiced support for action this year on the issue.

Draft of legislation is said to include group life