At a time when passenger airliners are being shot out of the sky in Eastern Europe and a virulently anti-American terrorist group has taken over large swathes of the Middle East, U.S. business owners are getting letters from their insurance companies informing them that as of January 1, 2015, they may no longer be covered for damage done during a terrorist attack.
The problem is that the Terrorism Risk Insurance Act, which creates a government backstop to protect insurers against catastrophic losses in the event of a terrorist attack, is set to expire at yearend, and a powerful group of Republicans in the House of Representatives – egged on by far-right interest groups such as the Heritage Action for America and the Club for Growth – are pushing to greatly limit its scope in the near term, and eliminate it altogether within five years.
This is creating the kind of uncertainty in the business community that costs jobs, wrote W. Edward Walter, president and CEO of Host Hotels & Resorts in a recent op-ed in The Hill. “Lenders will be reluctant to make loans without terrorism risk coverage on the assets being financed. Without TRIA, business expansion would slow down, costing tens of thousands of jobs. Companies would have a harder time raising capital in the debt markets, hurting an already sluggish economic recovery. The result: fewer pay raises and more layoff notices.”
The TRIA as originally passed in 2002, a little more than a year after the September 11 attacks of 2001 killed 3,000 Americans and cost insurance firms an estimated $30-to-$40 billion in claims. Large insurance companies typically have their own form of insurance – called reinsurance – meant to protect them from huge losses. The September 11 attacks were so expensive for reinsurer companies that they stopped offering terrorism insurance altogether, with the result that regular insurance firms soon stopped covering terror attacks as well.
It became clear that without insurance against terrorism, banks were unwilling to lend funds to large construction efforts and other major projects judged to be potential terrorist targets. Investment capital for such projects dried up as well. By some estimates, the slowdown in investment and construction that resulted cost some 300,000 jobs.
In 2002, Congress stepped in with TRIA, in effect setting itself up as a reinsurance company for terrorism risk. TRIA essentially required insurance companies to offer cover damages from terror attacks, but set limits on their overall liability. The bill, signed into law by President George W. Bush, had the desired effect. It was later renewed in 2005 and 2007.
The Senate last week approved another renewal of the bill, which increases the insurance industry’s share in losses by a third, in a bipartisan 93-4 vote. But TRIA’s fate in the House of Representatives is far less certain.
The House Financial Services Committee, which has jurisdiction over the bill, is chaired by Rep. Jeb Hensarling (R-TX), who has made it clear that he doesn’t believe the program should exist at all. Rep. Randy Neugebauer (R-TX), who chairs the panel’s Housing and Insurance subcommittee, is also an opponent of the Senate bill. Neugebauer introduced his own proposal to renew the program, which dramatically limits the kinds of attacks covered and phases the program out completely over five years. It passed the Financial Services Committee on a party-line vote.
However, Rep. Peter King (R-NY) has said that he and some 30 other Republicans in the House will join with Democrats – who are unanimously opposed to the bill – in blocking it on the House floor, leaving the bill’s fate uncertain. King and most House Democrats support the Senate version of the bill, which leaves the program largely in place, except for the increase cost sharing.
Hensarling, though, has indicated that rather than accept a compromise he doesn’t support, he would put forward a six-month extension to allow further time for negotiation.
The two sides appear headed to a showdown this week, with no clear path to final resolution.
It may seem as though there is plenty of time, with the current legislation expiring at yearend. But Congress will leave town for a month at the end of July, and it will return with the 2014 mid-term elections looming in the future. With the current Congress’s history of pushing crises to the very brink of disaster, it may not be until a post-election lame duck session that this issue is resolved.
If that’s what happens, it’s very bad news for businesses and for the economy. Expiring insurance plans need to be rewritten, and any year-long policy written today will have to be done with the possibility in mind that terrorism insurance may no longer be available in 2015. That throws businesses considering long-term investments in major infrastructure projects, as well as their investors and lenders, into doubt.
With the jobs market finally showing signs of a robust recovery, the last thing the economy needs is an ideological battle in Congress creating reasons for businesses not to hire more workers.
Correction: The original version of this article incorrectly reported that House Financial Services Committee Chairman Jeb Hensarling (R-TX) was willing to allow the Terrorism Risk Insurance Act to expire at the end of the year.
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