Senate Extends TRIA Backstop Seven Years

On Friday, the U.S. Senate approved legistlation that would extend the federal terrorism insurance program for seven years. This extension represents less than half the period approved by the House, and excludes coverage of nuclear, biological and chemical events.   
  
Initially passed after the Sept. 11 attacks, the Terrorism Risk Insurance Act promised to reimburse insurers if foreign extremists launch another major strike. The Senate bill, approved today by unanimous consent, would extend the law until 2014 and include coverage of domestic terrorism.   
  
"This is very good news for workers, businesses, and the national infrastructure,'' said Senator Christopher Dodd, the Connecticut Democrat who heads the Senate Banking Committee. The legislation, he said, ``is absolutely essential to the real estate market, jobs, the construction industry.''   
  
To extend TRIA before it expires, the House and Senate must still reconcile their competing proposals before Dec. 31. Treasury Secretary Henry Paulson said President George W. Bush would back the Senate bill, after earlier threatening to veto the House version. The House plan would extend TRIA for 15 years and reimburse some industry losses for nuclear and other unconventional strikes.   
  
Paulson said Bush would prefer a shorter extension than approved by the Senate and wants the federal program "phased out in favor of a private market for terrorism insurance.''   
  
Dodd is "quite confident'' that the two houses can work out a compromise by the end of the year, he said in a conference call. The House bill also covers strikes from homegrown extremists.   
  
The Senate bill requires the Government Accountability Office to study whether the U.S. should offer the coverage for unconventional attacks, which are not protected under the current program.   
  
Some insurers, including Hartford Financial Services Group Inc., the sixth-largest U.S. commercial insurer, don't want TRIA to cover such events. If unconventional attacks are included, insurers would be required to offer coverage against them to qualify for any reimbursement from TRIA. Potential losses from such attacks are so massive that they could bankrupt the industry, said Ramani Ayer, Hartford's chief executive officer.   
  
"These are perils that, when conducted on a very large scale, could cause major disruptions to the industry and the American economy,'' Ayer said in an interview.   
  
A nuclear attack in lower Manhattan could cost as much as $778 billion, the American Academy of Actuaries estimated in 2006.   
  
Under the present insurance law, the government covers 85 percent of losses from a terrorist attack for an insurer after it pays deductibles equal to 20 percent of its annual commercial premiums. This year, that's estimated at $35 billion to $40 billion across the industry.   
  
Congress already renewed the TRIA program once, in 2004. It needs to be renewed again because the private market is unable to offer the coverage without government backing, Ayer said.   
  
"Terrorism, unlike many other large-scale disasters that confront the insurance business, is basically a peril that we can't foresee,'' he said. ``We can not predict it, we can not forecast its frequency or severity or location.''