The U.S. Senate adjourned yesterday without passing the bill that would reauthorize the Terrorism Risk Insurance Act (TRIA), which is set to expire December 31st.
In other words, TRIA will not be passed this year.
And I am shocked. The general anticipation in Comp Land was that TRIA would pass but with more financial burden on insurance companies.
TRIA is very important to the economy. The reason for TRIA is to help businesses afford terrorism coverage after 9/11 because insurers quit offering it or it was just too expensive.
The rules are a bit different for workers’ compensation carriers. They must cover all work-related occupational illnesses, injuries and deaths and cannot make an exception for those caused by terrorism. For this reason, the risk of losing carriers or risking high premiums can cripple state economies should a terrorist attack occur.
It is unreasonable to ask insurers to foot the bill for terrorist attacks
when it is the federal government that handles risk mitigation.
How could this happen when terrorism threats seem to grow on an almost a daily basis and the current political environment seems to be more concerned with ideals rather than reality? The insurance industry says it cannot absorb another 9/11. Given the low investment income and other challenges, this is quite possible.
Passage was looking promising last week when the U.S. House of Representatives agreed to reauthorize TRIA by a vote of 417-7, reflecting amazing bipartisan support. The seven house members who voted against it were all Republicans.
Blockages this time was also due to a Republican. Retiring Sen. Tom Coburn (R-OK) kept the bill from passage because it lacked a provision for states to opt out of a program unrelated to TRIA. U.S. Senate Majority Leader Henry Reid (D-Nev.) would not agree to add the measure, according to Politico.
That’s right, TRIA did not pass due to an opt-out provision being demanded from one senator who is retiring anyway.
Since I am not a beltway insider, I don’t know where this notion came from, but I suspect it had little to do with TRIA’s merits. My guess is this has more to do with growing political tensions about states rights due to unilateral actions made by the Obama Administration. TRIA was re-authorized twice before.
Coburn might not realize a very significant fact that makes terrorism insurance different from any other. That is, insurance companies, which can encourage risk management to curtail potential losses in other lines, are dependent on government security and action to do the same. It is unreasonable to ask insurers to foot the bill for terrorist attacks when it is the federal government that handles risk mitigation.
TRIA has had its challenges all along. Lawmakers wanted the insurance industry to carry a greater financial burden with higher deductibles. Some conservative Republicans did not like it on the principle that the government should not be expanding its reach. Others viewed it as a form of corporate welfare. Last week, the bill was pulled from cromnibus negotiations, because Republicans wanted revisions to the 2010 Dodd-Frank Act. Sen. Chuck Schumer (D-New York), who had introduced the most active TRIA legislation, refused to compromise.
The concept of government-sponsored terrorism coverage and/or backstop is nothing new. Several countries, including Britian, France, Spain, The Netherlands and Germany, offer some type of terrorism backup or fund, according to a report by Willis.
As sure as the day is long, TRIA will be introduced in the next Congress. Hopefully, the new Congress will be more sensible.
To learn more, check out my Actuarial Review article by clicking here.
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