Legislation extending the Terrorism Risk Insurance Act that specifically covers group life insurance for the first time was overwhelmingly passed by the House on Sept. 19.
H.R. 2761, the “Terrorism Risk Insurance Revision and Extension Act of 2007,” extends TRIA for 15 years, until 2022 and also beefs up other areas of the program.
But the bill faces a myriad of problems, including less support for inclusion of group life in the Senate than in the House, and a veto threat from the White House that singles out inclusion of group life as one of the primary concerns of the administration.
Additionally, changes made in a provision that would already prohibit most use of travel destination information in underwriting life policies is raising fresh hackles within the life industry.
At the same time, the bill faces a procedural problem. In an effort to skirt a situation that normally would require a cut in existing programs or new revenues to offset the cost of the program, the House Democratic leadership added a provision requiring a second vote authorizing expenditure of federal funds to reimburse insurers in case of an attack.
Insurers voiced concern about such a provision even though members of the House Democratic leadership said they would work to craft a solution more preferable to the industry that they would propose at a House/Senate conference to reconcile differing bills.
However, in a bulletin to the directors of the Council of Insurance Agents and Brokers sent after the House vote, Joel Wood, senior vice president, government relations, for the CIAB, explained, “In conversations with multiple leading brokers in recent days, we have learned that enactment of such a provision would threaten the viability of the program, as reinsurers, rating agencies and others would take little faith in the pledge of ensuing congressional actions.”
With the veto threat from the Bush administration hanging over it, the next step for the bill is the Senate Banking Committee, which has yet to show its hand on the issue despite the fact the current extension of TRIA expires Dec. 31.
In comments after the House action, Sen. Chris Dodd, D-Conn., chairman of the Senate panel, said, “This is a tremendously important issue, and one that should–and must–be a top priority. We must ensure that our nation is financially prepared and protected from the threat of a future terrorist attack.”
The administration position, repeated by Republicans during the floor debate, is that TRIA was only intended to be a temporary mechanism to allow the market to adapt “in the short run” to the economic dislocations resulting from the 9/11/2001 attack.
“Therefore, the administration opposes the legislation’s 15-year extension,” an administration position paper said. “Instead, the program should be phased out in the near future.”
It said the House bill runs contrary to that by “unnecessarily” expanding the program by including group life insurance and by adding domestic terrorism coverage.
“The insurance market for these risks has remained robust and competitive since TRIA’s inception, even absent a Federal backstop,” the administration said. “Adding these insurance coverages to the Federal reinsurance backstop sends the wrong signal to the marketplace, which instead should be encouraged to find new ways to diversify the risks of doing business.”
At the same time, the administration gave itself a lot of wiggle room.
In its “statement of position” the administration for the first time explicitly stated that it would accept some form of extension of the program beyond its current expiration date of Dec. 31.
“The administration is willing to work with the Congress as the bill moves through the legislative process so that H.R. 2761 meets the critical elements of an acceptable extension,” the letter concluded.
The final vote in the House was 312-110, but earlier procedural votes were much closer and along party lines. For example, a motion to have the bill recommitted to the House Financial Services Committee for reworking failed, 196-228. And another vote to raise the deductible that insurers must pay one percent per year instead of the 0.5 percent in the bill failed, 196-228.
The “no” votes came almost exclusively from Republicans who believe the program has been unjustifiably expanded.
While lauding the decision to cover group life for the first time, life insurers voiced dismay at the decision to revise language in the travel underwriting provision that had been negotiated between the industry, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and the primary sponsor of such legislation, Rep. Debbie Wasserman-Schultz, D-Fla.
“The changes provide for a more restrictive standard for declining coverage in connection with foreign travel,” said Jack Dolan, an American Council of Life Insurers spokesman.
“The effect will be that it would require a good faith determination by an insurer of fraud in a particular country for insurers to deny coverage,” Dolan said.
“We are unhappy that these changes were made,” he said. “They reopened an issue that had been agreed upon and closed. But we are not going to oppose this. We want TRIA legislation with group life’s inclusion reauthorized.”
The ACLI “praised” the House for including group life in the program specifically since the first bill was passed in November 2002.
“Adding group life insurance to the TRIA program will help ensure that group life insurers will have the capacity to meet their commitments in the event of a catastrophic terrorist attack and that group life insurance will remain available and affordable after such an attack,” said Frank Keating, president and CEO of the ACLI.
Keating added that, “We look forward to presenting our case to members of the Senate on the importance of including group life insurance in any extension of TRIA.”
Inclusion of group life insurance is “recognition of the vital role this key employee benefit plays in helping Americans secure their families’ financial futures,” Keating said.
Specifically, he explained, in 2006, almost $21 billion in death benefits were paid to group life beneficiaries, which represented about 37% of all death payments. Group life insurance represented about 47% of all life insurance in force, or $8.9 trillion out of a total $19.1 trillion at the end of 2006, according to ACLI statistics.
There were about 177 million certificate holders of group policies, with an average coverage amount of $50,200, Keating said.