Terror insurance bill -- with lower trigger -- clears House subcommittee

Here is good news for some: The threshold triggering federal reinsurance coverage for terrorism damage following any major attack would be considerably reduced under an amended version of legislation to extend the five-year-old backstop approved by the U.S. House Financial Services Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee. Cleared in a 24-to-19 vote, the Terrorism Risk Insurance Revision and Extension Act (originally known as TRIA, before “revision and extension” was added) was amended to include a proposal by the panel’s former chairman, Representative Richard Baker (R-Louisiana), to reset the Terrorism Risk Insurance Program’s trigger level to $5 million nationwide following any attack or series of attacks causing at least $1 billion in losses. The bill previously contemplated lower post-event trigger levels, but only in immediately impacted areas.

Baker’s represents a break with the Bush administration, which already opposes the bill’s plan to lower the program’s trigger to $50 million from its current $100 million level. Baker suggested the change was necessary to provide “equity” in coverage to rural areas and to allow smaller insurers that serve those areas the ability to participate. With the subcommittee vote, the measure now moves to the full House Financial Services Committee. The measure is scheduled as the last of six items to be marked up by the committee today, but several members expressed their expectation it would likely be held over until the week of 30 July. The bill, H.R. 2761, calls for a 10-year extension of the Terrorism Risk Insurance Program, which provides $100 billion in terrorism capacity to the industry. Previously extended in late 2005, the program is set to expire at year’s end.

The panel approved a package of amendments introduced by subcommittee chairman Paul Kanjorski (D-Pennsylvania), notably a provision to delay and gradually phase-in a requirement that insurers offer coverage for nuclear, biological, chemical, and radiological (NBCR) attacks. Under the revised bill, the expanded “make available” provision for NBCR coverage would apply to TRIA-covered policies renewed or initiated in 2009. The amended legislation calls for insurers to retain a deductible for NBCR events equal to 3.5 percent of the company’s direct earned premium for covered commercial property/casualty lines, or an equivalent amount at-risk for group life insurance. The deductible would rise 0.5 percentage points each year the program is in effect. The deductible for conventional terrorist attacks would remain at the current 20 percent level.

Kanjorski also said he would work with Representative Donald Manzullo (R-Illinois), former chair of the House Small Business Committee, on his proposal allowing state regulators to grant smaller insurers safe harbor from the NBCR make-available mandate if the requirement would threaten the company’s solvency or their ability to offer coverage for conventional terrorism. Kanjorski’s package adds two seats to a blue ribbon commission tasked with proposing long-term solutions to the terrorism insurance issue. The 21-member panel, which must provide an interim report in 2012 and final recommendations in 2015, also would be directed to “focus on significantly reducing the federal role in covering losses resulting from acts of terrorism,” Kanjorski said. The package also caps federal exposure for group life insurance claims at $1 million per-certificate holder. Group life is not covered under the current program, but the bill sets out a separate $5 billion recoupment pool for group life term, accidental death, universal, and variable universal life insurance. It excludes corporate-owned and bank-owned life insurance. The insurance industry generally supports the measure.