As the Senate and the House of Representatives reconvene today, members of the insurance industry are particularly anxious about the fate of two measures: the renewal of the federal Terrorism Risk Insurance Act and approval for the creation of the National Association of Registered Agents and Brokers (NARAB) program.
More than 400 insurance businesses, including
Aon, Willis North America,
Swiss Re, Lloyd’s of London and
AIG, sent a letter urging lawmakers to renew TRIA as soon as possible. Already, they say, negative effects of not renewing the federal backstop have affected both the insurance industry and members of the public.
AAMGA Executive Director Bernd Heinze, Esq., pointed out that because insurers and underwriters are tackling renewals of multi-year policies, tough decisions have been made regarding premium rates and specific terms of coverage.
“Quite frankly, with the Jan. 1 renewal season being quoted, the industry has already missed out on having multi-year discussions with the consumer,” Heinze told Insurance Business America. “And for those policies being renewed through 2016 and 2017, underwriters have said ‘Okay, we’ll renew for a year, depending on what Congress does on TRIA, and then we’ll have to look again.’
Premium rates may increase if Congress does not renew.”
Two versions of TRIA are currently up for debate in Congress. The Senate version, S. 2244, extends the federal reinsurance program for seven years and imposes more liberal triggers for when the federal backstop kicks in.
By comparison, the House bill would renew TRIA for just five years and cut back on government involvement in the program.
As such, Ted Besesparis, Senior Vice President of the National Association of Professional Insurance Agents (PIA), says most in the industry prefer the Senate bill.
“We’re very concerned about getting TRIA renewed and would like the Senate version to receive hearing in the House,” said Besesparis. “Our members’ clients need terrorism coverage for their businesses and homes, and that concern is particularly acute for commercial clients."
The role of the private market
For Heinze, any final version of a TRIA renewal ought to include a pathway for the private insurance market to eventually assume more management of terrorism risk. The potential and capacity is there, he says, thanks to an influx of new capital and the presence of talented underwriters—the industry just needs some time to study it out and create solid modeling systems.
“Our desire is to ensure that a public-private consortium is established so that actuaries, underwriters and modeling agencies can start working with Congress to begin a dialogue on when TRIA can be sunset responsibly,” Heinze said. “Given the capital in the market, once adequate modeling can be achieved, there will be an ability to establish a private sector insurance solution for most terrorist events.”
NARAB
Another critical piece of the current congressional drafts of TRIA is the NARAB inclusion. Providing for the establishment of a one-stop licensing and registration board for agents and brokers operating in multiple states, NARAB has struggled to find passage in recent years.
It’s important to the PIA, the AAMGA and other industry bodies that the current provisions for NARAB within the TRIA renewal continue to move forward.
Moving forward
As for the chances of TRIA passage, Heinze says he is “cautiously optimistic” that an agreement will be reached before the program sunsets at the end of the year—and preferably before Congress recesses again before mid-term elections.
“If it’s not done before Congress goes out of session in November, there’s going to have to be special session work done,” he said.
If not? Members of the public may eventually pay the price.
“There will be tremendous repercussions with regard to building and construction, trade securities, building stocks and bonds—those all need to have terrorism coverage,” Heinze stressed. “We can’t be so myopic as to think [not renewing TRIA] will just have an impact on insurance companies and policyholders—a bank, school or bridge could end up not being built because of the lack of a federal backstop.”
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