S467DEC9

TheWeekInCongress.com

Week Ending December 9, 2005

S 467 To extend the applicability of the Terrorism Risk Insurance Act of 2002.

BRIEF

The House passed this bill in lieu of it’s own bill, HR 4314.

Congress justified the bill on the findings that businesses and individuals need reasonable and predictable rates for insuring property and life in order to stimulate economic growth, community development, public and private housing and even foreign trade.

Insurance firms are seen as ‘important financial institutions’ that take the risk in the face of potentially more terrorist attacks and Congress recognizes that they also have terminated insurance coverage or ‘radically’ escalated premiums to compensate for the risk they believe they are taking. The high cost of or absence of coverage is the threat Congress sees to assuring an active economy.

So it is the policy of Congress that the US Government should provide temporary financial compensation to insured parties while the insurers and ‘financial services industry’ “develops the systems, mechanisms, products and programs necessary to create a viable financial services market for private terrorism insurance.”

The bill continues a "temporary Federal program that provides for a transparent system of shared public and private compensation for insured losses” due to terrorism. 2006 is the fourth year of this program and 2007 will be the fifth after which the program will expire or be continued. The goal of the program, according to bill text, is to protect consumers by addressing market disruptions and keep premiums down and give the insurance industry time to build a capacity to absorb and future losses.

Insurers will pay a deductible that increases from 7% in the first year to 15% in year three. Year four deductibles will be the result of adhering to a formula that includes deductibles to 20% for some coverage. Deductibles for NBCR coverage, that coverage for nuclear, biological, chemical or radioactive reactions, releases or contaminations are much lower in the 7% range.

The bill also excludes lines covered under the Federal program. They are commercial automobile insurance; burglary and theft insurance; surety insurance; professional liability insurance; and farm owners multiple peril insurance.

Currently the Federal share to pay off claims is 100 percent. Insurers would pay ten percent of the claim in year four. The bill reduces the Federal share to between 80% and 95% in the fifth year depending on the total aggregate amount the insurance industry faces.

The formula for compensating insurance carriers based on aggregate loss of all claims carried by all participants in the program and is described as such for year five:

`(i) 80 percent of the aggregate industry insured losses of less than $10,000,000,000;

`(ii) 85 percent of the aggregate industry insured losses between $10,000,000,000 and $20,000,000,000;

`(iii) 90 percent of the aggregate industry insured losses between $20,000,000,000 and $40,000,000,000; and

`(iv) 95 percent of the aggregate industry insured losses above industry losses above $40,000,000,000;

The government will not pay out until aggregate or total insurance industry payout reaches $50 million. The bill increases that trigger amount to $100 million beginning January 1, 2007. The trigger drops down to $50 million after 2007 should the program be continued into those years.

Sponsor: Representative Richard H. Baker (R-LA-6^th)

Vote: Passed Senate by Unanimous Consent November 18, 2005. Passed House 371 to 49 (RC 612) December 7, 2005.

Cost to the taxpayers: Cost data not given.