Senate backs 7-year terror insurance renewal

Washington

11.18.07 -- 12:03 PM

By Kevin Drawbaugh - Reuters

The Senate voted on Friday to extend the government's post-9/11 terrorism risk insurance program through 2014, setting up a struggle with the House of Representatives over a matter of keen interest to insurers and big-city real estate developers.

The bill passed by the Senate calls for a 7-year extension of the Terrorism Risk Insurance Act (TRIA) program and a broadening of coverage to take in potential domestic, as well as foreign terrorist attacks.

The House has already passed its own TRIA bill, which would take in domestic attacks, too. But it would extend the program for 15 years; mandate private coverage for nuclear, chemical, biological and radiological attacks; take in group life insurance; and set a lower TRIA damages trigger.

House-Senate conference negotiations, to agree on a final bill, now lie ahead.

"It is very important that we begin conversations about a compromise," said Rep. Barney Frank, chairman of the House Committee on Financial Services. "I look forward to a formal conference or otherwise with the Senate."

The Massachusetts Democrat said previously that he might seek a short-term TRIA extension, of possibly four months, rather than accept the Senate bill under deadline pressure.

TRIA, first adopted in 2002, created a federal terrorism reinsurance backstop program. It obligates the government to help private insurers pay for damages caused by a major terrorist attack above certain trigger levels.

In the absence of an attack since September 11, 2001, TRIA funds have never been tapped, but the program is contentious.

Critics call it a subsidy to insurers that is retarding development of a private terrorism risk insurance market.

But proponents say TRIA has stabilized urban property markets rocked by 9/11 and should be made permanent because private markets cannot insure against terror risk.

Initially envisioned as a stop-gap measure, TRIA has already been extended. It will expire on December 31 without action from Congress and the Bush administration to renew it again.

"This program was created in 2002 because after 9/11, the private insurance market vanished for property owners and developers who wanted to insure against the risk of terrorist attacks," said Senate Majority Leader Harry Reid.

TRIA "made that coverage available again," said the Nevada Democrat. "Without this program, terrorism insurance will become unavailable or prohibitively expensive, construction projects would grind to a halt and Americans would lose jobs."

But Robert Hunter, director of insurance at the Consumer Federation of America, a consumer advocacy group, said real estate development would continue without TRIA.

Hunter said the insurance industry is immensely profitable and can afford to cover terror risk, but prefers not to.

The U.S. property and casualty insurance industry's after-tax net profit rose 10.7 percent to $32.6 billion in the first half of 2007 versus a year earlier. Insurers' aggregate net worth increased in that period to $512.8 billion as of June 30, according to Insurance Information Institute data.

David Sampson, president of the Property Casualty Insurers Association of America, an industry group, praised the Senate vote and called TRIA a "vital terrorism risk program ... to insure an otherwise uninsurable risk."

Marc Racicot, president of the American Insurance Association, another industry group, said in a statement: "It's absolutely necessary that the Congress continue their work and reauthorize this program by year's end."

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