Insuring Against Terrorism: With a Senator’s Parting Shot, a Bill Is Blocked

As of December 31, 2014, U.S. insurance companies will no long provide coverage against acts of terrorism, and neither will the U.S. government back them in doing so.

Those are the likely immediate effects of Congress’s failure to extend the Terrorism Risk Insurance Act (TRIA), blocked on December 16 in the Senate after outgoing Senator Tom Coburn (R.–OK) demanded changes to a provision authorizing multistate agency licensing.

TRIA was enacted in 2002 after private insurance companies refused to underwrite against acts of terrorism, fearing that there would be an increase in such crimes in the wake of the 9/11 attacks. It required insurance companies to pay out the first $100 million in damages caused by any such terrorist action, whereafter the federal government would pay 85 percent of any remaining losses. The provision of that insurance was considered of critical importance to the construction and real estate industries, as well as organized sports and entertainment, on the logic that buildings, sports events, concerts, and the like would make logical targets for our enemies.

TRIA has been twice reauthorized after 2002, and over the life of the legislation to date the federal government has not had to pay any damages. Observers thus forecast that the current reauthorization would go without a hitch, and indeed it passed through the House the week before by a vote of 417–7 before being blocked in the Senate.

That’s not to say that the House did not debate the bill extensively—so much so in the House Financial Services Committee, in fact, that there was some question about whether reauthorization would even be taken up on the floor.

Early iterations of the House and Senate versions of the bill, which went through committee this summer, differed in several respects, some substantial. The House bill would have reauthorized TRIA for five years, the Senate for seven; the House bill would have raised the floor from $100 million to $500 million in the case of “conventional attacks,” those that were not nuclear, biological, chemical, or radiological in nature. The House bill would also reduce federal government payouts to 80 percent rather than the current 85 percent. Finally, it mandated a certification process whereby the attorney general, secretary of treasury, and secretary of homeland security would issue a declaration that a given event was the result of terrorism within 15 days of its occurrence.

Like the House version, the Senate bill included provision for the establishment of a National Association of Registered Agents and Brokers (NARAB), which would allow agents and brokers to apply to a central clearinghouse, administered by state insurance commissioners, that would in turn streamline multistate licensing. The insurance industry reportedly favored the Senate version, especially after certain provisions of the Dodd-Frank Act were exempted, allowing energy and agricultural companies and other “end users” to use derivatives as a hedge. Democratic senators Elizabeth Warren (MA) and Charles Schumer (NY) publicly opposed the Dodd-Frank exclusion but voiced approval for the reauthorization of TRIA.

In the end, the House bill as passed had a threshold of $200 million, not $500 million, and extended TRIA for six years, not five. The Senate version, which had been revised to reflect changes in the House version, was held up as the Senate met in the final week before the Christmas recess. Senator Coburn led the opposition, demanding that a provision be added to allow states to opt out of the multistate licensing system.

Senator Coburn’s refusal to allow a floor vote to be held means that reauthorization of TRIA now must await the incoming Congress. Analysts believe that legislative approval will be forthcoming, though when it will appear on the calendar remains to be seen. Meanwhile, although the White House has voiced opposition to the Dodd-Frank exclusion, there is no indication that the reauthorization as it is now written runs the risk of a veto. We look to Capitol Hill for the next steps in reinstituting a law that, as of this writing, will expire in just two weeks.

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