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Insurers Win On Coverage Of Terror Risk

A powerful business lobby stands to lose a key fight over terrorism insurance under a deal struck between the lead senators writing an extension of federal guidelines for backing up insurance companies in the case of catastrophic attacks.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.), the panel’s senior Republican, agreed Friday on draft legislation to extend the Terrorism Risk Insurance Act. The compromise would fulfill the broad goal that insurance, corporate real estate and other business groups have been lobbying hard for since last fall: a long-term extension of the federal government’s terrorism insurance backstop. The Banking Committee is scheduled to mark up the bill Wednesday.

But the Senate proposal leaves out a controversial provision that would require insurers to offer coverage against nuclear, biological, chemical and radiological attacks in addition to conventional terrorist attacks. This is a crucial omission for businesses that must buy terrorism insurance, as they say insurers will not offer such policies without being required to do so. The requirement is part of the House bill, which passed Sept. 19.

The Senate draft would merely direct the President’s Working Group on Financial Markets to continue considering such coverage, which isn’t required under current law.

These businesses are represented by the Coalition to Insure Against Terrorism, and they say they will continue to push for the requirement. “It is our hope that at some point in the legislative process, the final product will address NBCR affirmatively,” said Martin DePoy, coordinator of the coalition’s steering committee. The coalition includes a diverse group of companies, ranging from Citigroup Inc. to Hilton Hotels Corp. to the Office of the Commissioner of Baseball.

The winners under the Senate compromise would be small- and medium-sized insurers, represented by the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies. They have fought against being required to provide coverage for the unconventional attacks, arguing that the House provision would make terrorism policies prohibitively expensive for some commercial consumers to buy and for their member insurers to cover, possibly driving these smaller underwriters from the commercial market.

The House bill seeks to assuage such fears by lowering insurers’ deductibles and their share of the losses for unconventional attacks. Under the terrorism insurance program, the federal government acts as the industry’s reinsurer, sharing the losses once they pass a certain point. In exchange, the government requires insurers to provide insurance against conventional terrorist attacks.

The House trade-off won the support of the American Insurance Association, an industry group representing Travelers Cos., The Hartford and other large insurance companies, which worked with the business coalition on the legislation. In general, larger insurers, with their greater financial resources, are less concerned they’ll be wiped out by making limited payments in the wake of an unconventional terrorist attack. In addition, several of the association’s members write a high volume of workers’ compensation policies. They stand to benefit from the House bill’s lower deductible and more generous cost-sharing, since state laws almost universally prohibit insurers from excluding such unconventional events from workers’ compensation policies.

The terrorism insurance law started as a stopgap, meant only to shore up the nation’s terrorism insurance market, which dried up in many areas after Sept. 11, 2001, while private insurers figured out how to provide terrorism coverage in the new world. In 2005, Congress renewed a less generous program for two more years. That law expires at the end of 2007.

Insurers an corporate policyholders now contend that the private market will never be able to adequately insure against the risk of domestic and foreign acts of terrorism. Their arguments have proved compelling in the current Congress, especially among Democrats. The House bill would extend the program for 15 years; the Dodd-Shelby draft would continue the program for seven years.


The Senate time frame represents a true compromise between the two lawmakers since Shelby, a longtime critic of the terrorism risk-insurance law, supported the Bush administration’s desire for the program to remain temporary, and Dodd, a loyal ally of the insurance industry, said he’d like to see the law made permanent.

While the property casualty and mutual insurance companies prefer the Senate draft for its lack of the coverage requirement, they would like to keep the House bill’s lower “trigger” — the amount of damages from a certified terrorism event above which the federal government starts sharing the financial burden. The House trigger is $50 million per event, while the Senate draft’s trigger is at $100 million.

A lower trigger level is key to small and medium-sized insurers’ being able to compete in the market, said Justin Roth, senior director of federal affairs for the National Association of Mutual Insurance Companies, which promised to keep working on the issue.

But overall it appears such elements aren’t going to be a deal-breaker for smaller insurance companies, which are more concerned with getting a long-term extension and avoiding the requirement to provide the unconventional coverage. “I think our members were very, very concerned about the NBCR mandatory provision, and we are definitely very pleased that the Senate doesn’t intend to include that on its version of the bill,” said Cliston Brown, a spokesman for the Property Casualty Insurers Association.

Whether the corporate policyholders and other supporters can get the coverage requirement back in the bill depends on politics and timing. The most likely time for the provision to go back on the table, lobbyists say, is during a House-Senate conference on the terrorism insurance law extension. But the congressional calendar is running out, and whether there’s time for a formal conference before the law expires will depend on how fast Dodd can move his bill through committee and to the Senate floor.

The provision’s fate also rests in the hands of House Financial Services Committee Chairman Barney Frank (D-Mass.), who championed the House version. “It’s unclear at this time how he’s going to react” to the Senate draft, said a lobbyist on the policyholder side. “I think he stands pretty strongly behind his product.”

Frank is not saying much. “I’m not going to negotiate the bill with you right now,” he told Politico on Monday.

Finally, those who support the coverage requirement must weigh the loss of that provision against the overall gain the Senate draft could represent for their members, especially since the White House has told some lobbyists privately that President Bush would not veto the Senate version. He has already announced his intention to veto the House bill if it arrives in its current form, a threat that appears largely aimed at the unconventional coverage requirement, lobbyists say.

That puts supporters of the coverage requirement in the tight spot of praising the Senate draft while nudging for more.

“We are very pleased with the Senate compromise that would provide much-needed stability, and hope that the final product will address the lack of NBCR coverage raised by the President’s Working Group on Financial Markets,” said Brendan T. Reilly, senior vice president of government relations for the Commercial Mortgage Securities Association, a member of the Coalition to Insure Against Terroris, referring to a 2006 report that concluded there may be little hope that the private market would offer the coverage on its own.

The American Insurance Association, which worked with the coalition and supports the House bill, will continue to work for the provision, said Leigh Ann Pusey, the group’s senior vice president for governmental affairs. But if all that emerges is a study, “that’s a step in the right direction,” she said. “A study will at least give us an opportunity to revisit the issue.”