House Republicans Face Battle Over Terror Insurance
Government Shutdown meeting - Boehner and House Republicans
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The Fiscal Times
May 5, 2014

More than a decade ago, the 9/11 attacks on the World trade Center and the Pentagon changed everything about how insurance companies calculated risk.—Protecting clients from the massive losses related to terrorist attacks was a game changer.

Now, a law that made it possible for insurance coverage to remain affordable in the aftermath of those attacks needs to be renewed, but divisions within the Republican Party have cast doubt on its future.

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The 9/11 attacks were so devastating, and affected so many people, that insurers began looking at major public facilities – transit hubs, sports venues, shopping centers, major office buildings – as potential sources of what some refer to as “overnight insolvency” events. A well-capitalized company could go from solid to bankrupt in the space of a few moments if a major terrorist attack struck one of their clients.

Not long after the 9/11 attacks, businesses began to hear from their insurance companies that coverage for terrorism-related damage was going to be extremely expensive – if it was available at all. Congress recognized the problem, and in an example of the government actually taking the sort of action that only the government can, passed a law designed to create and preserve a market for terrorism insurance.

Basically, insurers were required to offer terrorism coverage. The government did not set the rates, but they created a loss-limiting program that would protect insurers if their losses in any particular event exceeded $100 million.

In the end, it created an insurance marketplace that offered coverage for terrorist attacks. However, the legislation was limited. After a renewal in 2007, it is scheduled to expire at the end of the year. And while there is strong support in Congress for expanding it, a core of influential Republicans are asking whether government involvement in this aspect of the insurance market remains necessary. 

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House Financial Services Committee Chairman Jeb Hensarling (R-TX) has come out as openly skeptical about the need to renew the program, saying that he believes the insurance industry should, at some point, be able to successfully underwrite terrorism risk.

His position is, unsurprisingly, not shared by the insurance industry.

National Association of Mutual Insurance Companies spokesman John Bergner, said, “NAMIC’s position since the beginning is that the TRIA program has been an unmitigated success. It was designed to foster the development of a robust private market for terrorism coverage where there would not be one otherwise.”

The American Insurance Association, similarly, wants to see the program continue. “The Terrorism Risk Insurance Act protects policyholders and taxpayers by ensuring widespread availability of property and casualty insurance for terrorism risks and provides for an orderly recovery after an event. TRIA is made possible through a partnership between the federal government and private insurers, who together share losses resulting from catastrophic acts of terrorism,” the group said in a statement. 

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The current issue facing House Speaker John Boehner (R-OH) is whether he can get a bill extending a federal backstop that the business community and the majority of members of Congress want to see passed, through a House heavily-influenced by Tea Party Republicans who see any such government assistance as representative of the federal government folding in the case of pressure.

In the coming weeks, Boehner will be forced to decide between the position supported by business leaders, and the position supported by hard-right House Republicans. His major problem is that getting a bill continuing the federal backstop for terrorism insurance will likely require him to court Democratic votes in the House, something the Ohio Republican has been consistently unwilling to do. 

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.