Insurers Eye on Congress Action on Terrorism Insurance Law Extension
By Huijuan Jia
WASHINGTON, Sept. 30, 2004-A bill renewing a law that provides federal assistance to insurance companies that cover damage from terrorism was approved by a House committee Wednesday.
This was encouraging news for commercial property insurers, like The Hartford Financial Services Group, who rely on the federal government’s commitment to share the majority of losses caused by terrorism attacks.
“We are pleased by the House committee’s action,” said Cynthia Michener, spokeswoman of the Hartford-based insurance company. She said Harford is waiting for congressional action before making a decision on whether to include terrorism coverage in new policies next year. She said the company hopes Congress will pass the bill before the election.
Michener said that if the law is not extended, the company has to decide whether it would be able to underwrite terrorism coverage without federal protection.
The bill, known as the Terrorism Insurance Extension Backstop Act of 2004, was approved on a voice vote Wednesday by the House Committee on Financial Services. The legislation would grant a two-year extension of the Terrorism Risk Insurance Act 2002, which will expire by the end of 2005.
The current terrorism insurance law took effect in November 2002 in the aftermath of the September 11, 2001 terrorist attacks. It enables commercial insurers to provide affordable terrorism coverage to policyholders. The act establishes a program with the Treasury Department, under which the federal government shares the risk of loss from future foreign terrorist attacks.
If a terrorist attack causes a policyholder a loss in excess of $5 million, the insurance company would pay a basic deductible above which the government would cover 90 percent of the remaining costs.
Rep. Christopher Shays (R-Conn.), a member of the committee and co-sponsor of the bill, said that extension of the law would guarantee the availability of terrorism insurance coverage for businesses.
“After the Sept. 11, 2001 terrorist attacks, many businesses were no longer able to purchase insurance to protect against property losses that might occur in any future terrorist attacks,” Shays said in a written statement, “I support the legislation because it created a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders.”
The insurance industry wants action on the bill so companies can begin negotiations on new insurance policies and contracts. Annual policies for coverage starting in the new year are considered and negotiated starting in September. The policy period for such annual insurance contracts would run beyond the expiration date of the 2002 law. As a result, part of the coverage term would be in effect without the protections of the federal assistance.
“This calendar mismatch could create adverse financial consequences for commercial policyholders, insurers and the U.S. economy,” said Leigh Ann Pusey, the American Insurance Association’s senior vice president on government affairs. “Because commercial insurance policies taking effect in the early months of 2005 are being negotiated this fall, those financial consequences would be felt very soon if the law is not extended this year.”
Advocates for extension of the law are also waiting for the Senate’s action on a similar bill introduced by Sen. Christopher J. Dodd (D-Conn.).
“This law is working as it was intended: to provide some measure of insurance for American workers and American companies against the risk of terrorism,” Sen. Dodd said. “It needs and deserves to be extended. I look forward to working with members of the Banking Committee to accomplish this goal.”
But a spokesman for Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) said the terror insurance program is not set for action by that panel.
“In the near term nothing’s scheduled, but it’s certainly something we’re going to look at closely through the hearing process,” Shelby spokesman Andrew Gray said.
After the House approval, the insurance association urged the Senate to act. “Time is running short, and there is still much work to be done before this bill can be signed into law,” Pusey said.
According to a recently released study, U.S. businesses are buying more terrorism insurance amid international tensions.
Marsh Inc., a New York-based risk and insurance services firm, said in a report that almost half of its clients are buying property terrorism insurance in the second quarter of 2004, more than double from the same period last year.
Opponents of the bill said that insurance industry is deceiving Congress about need to extend terrorism insurance law, arguing that renewal of the law could cost taxpayers billions that industry could afford to pay and stifle the development of a private market for terrorism insurance. They argue that the Congress should not act on the issue until the Treasury Department finishes a study, due next June, it is conducting on the subject.
J. Robert Hunter, the Consumer Federation of America’s director of insurance and a former Chief Actuary of the Federal Insurance Administration, said in a press release that the insurance industry is trying to “hoodwink” Congress into extending the law before the Treasury Department completes its report showing that the law is “no longer necessary.”
In April, the federation released a review of the current law concluding that it would not be necessary after 2005. The ability of the private market to insure against terrorism is “enormous and growing,” insurer profits are “very substantial” and the financial condition of these companies overall is “rock solid,” the report said.
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