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From The Council of Insurance Agents and Brokers…

Council Commends House, Senate Panels For Swift Action On Terrorism Insurance Backstop Extension

Thursday, November 17, 2005

WASHINGTON – The Council of Insurance Agents & Brokers today commended the House Financial Services Committee and the Senate Banking Committee for their fast action on legislation that would extend the federal terrorism insurance backstop program beyond its Dec. 31, 2005, expiration date, and called for a conference between the two chambers to reconcile their differences. 

Council President Ken A. Crerar said the quick movement by both congressional panels and expected full Senate approval on Thursday show that Congress is aware of the economic disruption that would occur if the Terrorism Risk Insurance Act (TRIA) was allowed to expire without renewal.

“Clearly, the private insurance marketplace - and particularly the reinsurance market - does not have sufficient capacity to fully handle the risks of terrorism," he said. "Otherwise, there would be a vibrant reinsurance marketplace today for the current 'retention' of 15 percent of the costs of terrorism that the industry must pay before the backstop is available. The reinsurance marketplace for the retention barely exists, so it is inconceivable that the industry could immediately accept 100 percent of the risk without massive negative consequences for policyholders."

The Senate bill would offer a straight extension of the program for two years while scaling the program back and raising industry deductibles. The House bill similarly scales back the federal role, but includes “silos” for industry deductibles that marry the backstop to the covered lines of insurance that most need the federal “bridge.” Crerar said The Council favors the House version of the bill because in addition to responding to the instant issue of the impending expiration of TRIA, it includes the mechanism for a permanent solution to the issue of terrorism risk coverage through a pooling arrangement.

“Clearly, an act of terrorism against the United States is not something that can be calculated in terms of risk or potential damage,” Crerar said. “It is an unfortunate change in our way of life, but the reality is that we can never be sure that another terrorist attack against this country will not occur on these shores. So it only makes sense for the federal government to be involved in crafting a solution that will be in place and protect its citizenry against massive disruption to our economic system.”

In anticipation of Senate passage of the bill today, and House passage immediately following the Thanksgiving recess, Crerar said the two bills could be easily reconciled. “Despite reports of wide gulfs between the bills, we think congressional leaders could get their staffs to negotiate out their differences in a day’s time,” he said. “Even though we are all concerned about quick action, we deeply believe regular order should prevail, and the two chambers should work together in the remaining days of Congress to get a bill that works. We consider this a critical matter of domestic security, and we call on Congress to handle it as it would all other significant pieces of legislation and not try to shortcut the regular political process.”

Crerar also commended the House bill for including an important market-improvement provision that would significantly streamline the ability for corporate consumers to access the surplus lines marketplace. Under the provisions negotiated in the House, a large, sophisticated purchaser of surplus lines coverage could bypass the unnecessary and bureaucratic “declinations” process, and directly access surplus lines carriers that are covered under TRIA. Additionally, all other multi-state purchasers of surplus lines would be subject only to the declinations rules of the state in which the insurance was purchased. He singled out Financial Services Chairman Mike Oxley and Capital Markets Subcommittee Chairman Richard Baker for their leadership in advancing these market reforms. “And we are grateful to Congressman Barney Frank and Congressman Paul Kanjorski, the ranking Democrats of the committee, for successfully helping the majority to negotiate a compromise on this issue,” he said. “Surplus lines regulation is a morass, because there is little to no incentive for the states to harmonize their laws. This provision takes an important first step in rationalizing the surplus lines marketplace for policyholders, brokers and insurers.” 

Crerar was also grateful for the commitment of Senate Banking Chairman Richard Shelby and Senators Chris Dodd and Robert Bennett to finding a TRIA compromise. “Senator Dodd, in particular, has been stalwart on this issue since the day after 9-11,” said Crerar. “Without his leadership, policyholders would have suffered from significant dislocation and inability to secure affordable terrorism coverage.”

Finally, Crerar called upon the brokerage and policyholder communities to continue to pressure Congress for final action. “The developments this week have been encouraging, and we don’t believe there are any reasons why a deal can’t be achieved,” he said. “No single issue should get in the way of a negotiated compromise. We’re optimistic, but the drumbeat must continue, as final enactment is not assured.”