With the current version of the Terrorism Risk Insurance Act (TRIA) set to expire at the end of next year unless Congress takes affirmative action to extend it, one thing has become clear already: the politics are complicated. More specifically, the Republican caucus in the House of Representatives appears to be divided as to whether the federal government should continue to play a role in the private insurance marketplace.
Those with an interest in the continued viability of TRIA captives should pay attention because this is shaping up to be a very fluid and uncertain legislative process. But before getting too far into the political weeds, a quick historical refresher would probably be helpful.
TRIA was first passed by Congress on a bipartisan basis in 2002 with the intent of helping to stabilize the property insurance marketplace in the aftermath of the 9/11 terrorist attacks. The Act created a reinsurance program providing for a federal backstop for industry losses exceeding $100 million per year connected with future terrorist attacks.
The program details are that 85% of insured losses would be paid by the federal government after an insurer meets a deductible of 20% of annual premiums. For losses up to $27.5 billion, the Treasury Department will collect 133% of payouts through surcharges on property/casualty policies. Regulators have been given discretion to develop specifics to recoup payouts in access of $27.5 billion.
The Act was extended without much opposition in 2005 and 2007 so what’s different this time around? Those votes were cast prior to the 2010 congressional election, which swept into office many “Tea Party” Republicans and Democratic control was upended in the House.
There is no shortage of commentary with regard to whether or not the growing influence of these small government true believers within the House Republican Caucus is good for the party over the longer term so this blog will refrain from offering similar political commentary.
What we can say with some certainty is the emerging debate over TRIA re-authorization is exposing the same type of divide among Tea Party and “establishment” Republicans that has been seen repeatedly over the past three years on high profile legislation. Sometimes the party coalesced and other times it did not.
The current TRIA extension legislation (H.R. 508) is now pending in the House Financial Services Committee, which is chaired by Rep. Jeb Hensarling (R-TX). While a member of the party leadership, his conservative political orientation more often than not synchs with the Tea Party Caucus.
Clearing Hensarling’s committee is the first step to final enactment, but while the congressman has not explicitly ruled out moving the legislation, he has signaled real skepticism of maintaining the federal government’s role in the private insurance market, even in the cases of terrorism.
In recent meetings with Republican members of the committee (most of whom were not in Congress when the law was originally passed in 2002), industry lobbyists have confirmed conflicting positions. Some acknowledge that practical marketplace realities dictate the extension, while others have indicated they will oppose the legislation, citing the overriding priority of reducing the size and scope of the federal government. For their part, House Democrats are mostly sitting back at this point while the Republican politics play out.
Obviously there is still quite a bit of time on the game clock for congressional action and political ideology could very well yield to practical realities, but it’s risky to simply assume another TRIA extension will be pro forma. After all, if Congress can go to the brink over raising the debt ceiling, tax hikes and budget sequesters, why should we think that H.R. 508 will be pushed over the finish line by the tailwind from previous years?
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