Tags: terror | insurance | Senate | TRIA

Some Drama Over TRIA Extension

By    |   Wednesday, 26 Feb 2014 06:55 AM

On Feb. 25, the Senate Banking Committee held the second in its series of hearings designed to lay the groundwork for an extension of the Terrorism Risk Insurance Act of 2002 (TRIA), which is set to expire at the end of the year.

Under this program, the government will support insurance claims on any major terrorist event beyond a given stake for the industry. Then the Treasury may recoup the funds through a modest tax on insurance premiums, at the discretion of the Treasury.

Industry witnesses warned of dire consequences for the real estate industry as banks may refuse to fund projects unless they know TRIA is a done deal. Everyone is convinced that this will happen in due course, but loan covenants could be broken in the meantime, and costs for interim policies would be excessively expensive.

A parade of industry witnesses testified to their satisfaction with the existing program and the importance of extending it for at least 10 years and hopefully permanently. W. Edward Walter, CEO of Host Hotels, testifying for the Coalition to Insure Against Terrorism, recalled that two of his firm's properties were destroyed on 9/11, one was seriously damaged and two employees were killed.

Carolyn Snow, president of the Risk and Insurance Management Society, repeatedly warned that as TRIA winds down, property owners might be forced to buy expensive interim policies with deposits that would be unrefundable once TRIA is extended.

Bill Henry, testifying on behalf of the Council of Insurance Agents and Brokers, cheerfully reminded the Committee that terrorism risk is basically uninsurable, because it contemplates a deliberate act, and there are no data on which to base premiums nor any mitigating measures to be taken.

Warren Heck, on behalf of the National Association of Mutual Insurance Companies, was an equally ebullient defender of TRIA.

Vincent Donnelly, testifying for the Property Casualty Insurers Association, which specializes in workers' compensation insurance, testified that state law prohibits an exclusion for terrorism, and this extends to nuclear, biological, chemical and radiological risk.

The clinching witness was Douglas Elliott, president of commercial markets at The Hartford, testifying on behalf of the American Insurance Association (AIA). I vividly remember the glee an AIA lobbyist voiced when she realized that "We might not have to pay it [government support payments] back!"

The only discouraging words for the industry came from Sens. Tom Coburn, R-Okla., and Elizabeth Warren, D-Mass. Coburn read from the original language that the program was supposed to be temporary, to give the industry time to devise systems required to develop a private program. Instead, the industry has used the time to hone its arguments for a permanent entitlement.

The drama occurred when Warren served notice that she has a lingering question as to why the industry has never collected fees against the value of the federal guarantee. The lame answers from the panel only served to incite Warren to call the program a "giveaway" and to admonish the industry that whatever the value of the guarantee is, it must be greater than zero.

This will give industry lobbyists something to fret about as they wait for Congress to act.

(Archived video and witness statements can be found here.)

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Robert-Feinberg
On Feb. 25, the Senate Banking Committee held the second in its series of hearings designed to lay the groundwork for an extension of the Terrorism Risk Insurance Act of 2002 (TRIA), which is set to expire at the end of the year.
terror,insurance,Senate,TRIA
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2014-55-26
Wednesday, 26 Feb 2014 06:55 AM
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