Risk Management

Terrorism Risk Insurance Bill Passes House

The federal backstop for anti-terrorism insurance passes the House, but it could get crowded out by other priorities in the Senate.
David KatzJanuary 7, 2015
Terrorism Risk Insurance Bill Passes House

Although the U.S. House of Representatives voted to reauthorize the federal backstop for terrorism insurance Wednesday, there’s ample reason for skepticism that the program will be enacted in the new Congress.

terrorsimTo be sure, the bill was put on a fast track by the House. And senators like New York Democrat Charles Schumer have previously expressed optimism that the full Congress will re-up the Terrorism Risk Insurance Act of 2002, which was reauthorized in 2007 for seven years.

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Such optimism reigned in the waning moments of 2014, when reauthorization retroactive for the entire year seemed primed to pass in the Senate after it had been passed overwhelmingly in the House. But a long-time opponent of federal terrorism insurance, Sen. Tom Coburn, an Oklahoma Republican who has since retired,  blocked the bill, and time ran out. The result came as a big surprise to many, who thought reauthorization would be a done deal.

Despite the House’s overwhelming vote in favor of the bill, it still must go through the Senate. And even though Sen. Coburn is gone, there’s good reason to wonder whether other opponents linger who could scrap the bill – or, perhaps more pertinently, whether much higher priority items like the authorization of the Keystone XL Pipeline would put the measure on the back burner.

Indeed, the future of the legislation in the Senate is “a little murky right now” says Nathan Bacchus, senior government affairs manager for the Risk and Insurance Management Society, which has been a big advocate for the program. True, he added, the Republicans now have a majority in both houses, and Sen. Coburn is no longer around.

But the issue is not yet on the Senate calendar, and matters like Keystone could delay a vote until later this month, says Bacchus, who is the risk society’s lobbyist.

Further, property-casualty insurers and brokers are watching closely to see if they will need to make changes in corporate coverage if the bill is seriously delayed. If that happens, insurers, many of whom put clauses in their policies that would enable them to renegotiate terms if the law wasn’t passed, may strip existing terrorism coverage from the insurance corporations have bought.

If the law isn’t passed, says Carolyn Snow, director of risk management at Humana and immediate past president of RIMS, CFOs may have to start deciding whether or not to take on the risk of going through with a project that lacks terrorism coverage. That will be tough sledding, she suggests, because the risk is impossible to create models for – and hence budget for. Looking further out, it might cause finance chiefs to make tough budget decisions such as laying off employees in order to have some money on hand to cover terrorism risks.

Anxiety over the failure to enact the measure last year also appears to be bubbling just under the surface for insurers. Given the bill’s recent fate, “I can’t say that I’m confident that it’s going to pass,” says Mark Walls, vice president of communications  and strategic analysis at Safety National, a provider of excess workers’ compensation insurance to self-insured companies. “If it doesn’t happen in the first two weeks, then I’m really nervous about it because if they don’t act on it right away, and it sits, then those other priorities are going to jump in the way.”

The House bill would renew the current law, which provides a federal reinsurance backstop to private insurers to enable corporations to buy property-casualty insurance that covers terrorist acts, for six years. Signed into law by President George W. Bush in 2002, and reauthorized in 2005 and then in 2007 for seven years, the program was conceived by Congress as a temporary solution to the lack of coverage. The thinking was that the insurance industry would develop a private-sector solution to the problem. It has not done so yet, adding fuel to the fire of the program’s critics.

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