House passes TRIA extension.

In a major step toward the renewal of the Terrorism Risk Insurance Act (TRIA), whose December 31 expiration date is rapidly approaching, the House of Representatives has passed its version of the bill's extension.

The insurance and real estate industries have been anxiously awaiting the House decision since the Senate passed its version of the bill on November 18. The next step is for both the House and the Senate to "resolve the differences" between their bills before they break for Christmas on December 16.

TRIA was implemented three years ago to act as a federal reinsurance backstop to keep down insurers' financial losses in the event of a terrorist attack. Both the House and the Senate bills would extend TRIA for two years, with the possibility of a third.

Both bills would also raise the trigger amount of financial damage from a terrorist attack required for the federal government to step in, from its current $5 million to $50 million the first year and $100 million the second year. This has raised some debate over whether or not the spike is too high, leaving out smaller insurance companies, which would be unable to afford such high risks.

"My own caution throughout the process has been that Congress shouldn't make the trigger level too high," said Howard Mills, New York State supervisor of insurance. "I've advocated $25 to $30 million. You don't want to push the small to midlevel businesses out of the market. That would leave only the big companies out there; we need coverage for the smaller ones as well."

Though the two bills are similar in several respects, they also have their differences. The Senate bill was written as a straightforward extension of the provisions of TRIA, aside from the change in trigger level.

The House bill, however, has several modifications. Different types of insurance would have different deductibles assessed. It hopes to incorporate a wider variety of coverage, including coverage for domestic terrorism and group life insurance, as well as nuclear, biological, chemical and radioactive exposures. The bill also hopes to implement a more long-term solution, with the appointment of a private-public committee that would look into long-term alternatives to TRIA.

Of the two bills, it may be better for the industry if the House bill was passed, although experts predict the one most likely to be chosen will be the Senate bill, as it is geared more toward the views of the Bush Administration.

According to Marty DePoy, spokesperson for the Coalition to Insure Against Terrorism, "[The Bush Administration] believes that, with TRIA in place, it crowds out creative, private sector solutions with no incentive to come up with them.

"They feel the industry needs to be weaned from the program and forced to come up with new ways to address the problem."

DePoy added, "We might point out to those that argue [TRIA] is a bail-out for the insurance industry and the private sector, that without it we could see a situation much like Katrina."

Daniel Rubock, senior credit officer at the Commercial Mortgage Bank Securities group of Moody's Investors Services, said, "According to the Administration and the Treasury Department report in June, support should slowly be pulled out by gradually raising the deductible, the threshold to let the market adjust by taking away government support.

"I think every observer is confident that things will be worked out one way or other by the end of the year."

As nothing is guaranteed, there's still the possibility that no version of TRIA at all will be extended come December 31. This could produce disastrous results throughout the industry and beyond. Most insurance policies have been written in preparation for this, with an exclusion giving insurers the right to not offer any terrorism insurance at all.

"You'll see many policy owners struggling to find meaningful, comprehensive, terrorism insurance coverage," said DePoy. "You'll see a lot of policy holders and employees needlessly exposed to terrorism risk. We'll likely see a spillover into the economy as well. If businesses are unable to get any type of insurance, we'll see it hard for new businesses to take place and for established businesses to expand."

"Certainly New York is in the front and center," said Michael Power, senior vice president at insurers, Acordia Northeast, "but if they don't pass this law, it will affect all major metropolitan areas."

Most people in the industry are optimistic that some version of the bill will be extended before December 31. Once this occurs, the main focus will be on a long-term solution and whether or not there should be any federal involvement in the future. Many ideas are being discussed, including the implementation of a pooling system, which has been in place in several European countries, for instance the PoolRE in England, for some time now. Many in the industry, however, don't believe there will ever be a time when federal involvement is unnecessary.

"There needs to be acknowledgment that the federal government needs to play a role because the industry does not have the capacity," said Mills.

Power added, "I think as it stands presently, there always has to be some kind of government exposure. It's too much for the private marketplace to absorb."

For now, though, the industry is "glad they're doing something," Power said. "It's better than nothing at this point, but far from a permanent solution."