Crashing Waves

Whew. It was a wave—a good one if you’re a Republican like me. It solidified majorities in the House and was a thumping for Democrats in the Senate. Harry Reid is out, and Mitch McConnell in, as Senate majority leader. 

Democrats already are gearing up for 2016, when the electoral map favors their return to control. In the meantime, we have this problem, a very big problem. In this weird and fast lame-duck session of Congress, the Terrorism Risk Insurance Act, which is set to expire Dec. 31, has become a high-stakes game of chicken.

Throughout this congressional session, I have been confident (though not highly confident) TRIA would be reauthorized. After all, the Senate passed a seven-year renewal of the program, with tweaks, on a 93-4 vote. It united everyone from the far right, such as Sen. Ted Cruz, R-Texas, to the far left, such as Sen. Elizabeth Warren, D-Mass.

During the first half of this year, the House Republican leadership, via then-Majority Leader Eric Cantor, R-Va., was publicly committed to getting TRIA done. This was with or without the consent of House Financial Services Committee Chairman Jeb Hensarling, R-Texas, a longtime TRIA skeptic who wants to substantially scale the program back. All of this seemed to be rolling along nicely, and then—boom!—Cantor was shockingly defeated in his primary. Fears of conservative backlash empowered Hensarling.

My near-certainty for reauthorization remains unchanged, but meanwhile I’ve bitten my fingernails to the nub. Hanging in the balance is our ability to finally enact NARAB, the non-resident agent/broker national licensure clearinghouse. NARAB is a part of the Senate TRIA bill, although we had to eat a two-year sunset on the provision, thanks to the stubborn resistance of a single senator—retiring Tom Coburn, R-Okla. NARAB is also included in the TRIA version passed by the House Financial Services Committee.  

The House version has no sunset provision. So if the House version is adopted in a negotiated agreement, I will no longer be able to continue to count on putting my kids through college on more decades of seeking a national licensing opportunity for our members. Every sector of the insurance lobby wanted to get non-TRIA regulatory reforms attached to the moving train of TRIA. NARAB is the only one that has gotten this far. 

However, as the clock ticks, more congressional leaders are contemplating a short-term extension of the program. Hensarling has suggested six months, but almost everyone in the industry and policyholder community has rejected this option. Others have been talking up one, even two years—a straight extension of the program. This could imperil NARAB, but more importantly, the certainty of a federal terrorism reinsurance backstop is critical for commercial clients. A short-term extension would be disappointing, and we’d be back to the drawing board early next year, when we’d truly prefer to move on to other issues. 

There are two major frustrations I have with the process. First is the obvious embarrassment of our failure to get TRIA reauthorized amid so much professed bipartisan agreement and industry and policyholder determination. TRIA is Exhibit A in the dysfunction of Washington. Second is the inability of the chambers to rapidly work out the differences between the House committee bill and the Senate-passed bill. There’s really no excuse.

Hensarling’s bill would extend the program for five years, the Senate bill by seven. Might a reasonable person see a compromise in there? The deductibles/co-pays (i.e., industry “skin in the game”) are virtually the same in each version.

Here comes the rub. The Senate bill maintains the “trigger” for the federal program at an event of terror that causes more than $100 million in claims. The Hensarling bill would move this trigger to $500 million. Again, it’s not too difficult to see how there’s a compromise to be had, tilting in one direction or the other. Many of the larger insurers actually like the higher trigger. The smaller, mutual insurance companies can’t stand it. Smaller insurers believe they have too much exposure and concentration of risk and can’t participate in the program at a substantially higher trigger. Hensarling notes that the couple thousand smaller insurers account for only a fraction of TRIA premiums to date. The tension between the camps has grown substantially in recent months.

The other controversial distinction is the Hensarling provision to “bifurcate” risk known as NBCR (nuclear, biological, chemical and radiation) from conventional acts of terrorism. Hensarling’s goal is to get the federal government out of reinsuring conventional risks. Again, the battle lines are drawn, and many companies abhor an NBCR-only TRIA. That said, several proposals have been floated that could split and finesse the differences.

For all of the surface unanimity in the industry over TRIA extension, where one stands depends on where one sits within the marketplace. “Insurance industry consensus is a unicorn,” the great former lobbyist for Liberty Mutual, Doug Bennett, once said. “You can imagine one. You can draw a picture of one. But you never actually see one.”

Many industry players believe a scaled-back TRIA will be fine, maybe even good for business and the marketplace. Others believe a pared program will lock them out of participating in the market.

There is no doubt the industry has a greater global capacity and appetite for insuring against the risks of terror. Some major players (such as Warren Buffett and Hank Greenberg) have even said they’d like to see the federal backstop go away. Most of us believe the absence of TRIA will hurt the economy and the program is a model for how government should work—built upon private participation and private incentives.

Finding the sweet spot that will work while allowing the expansion of private coverage has proven to be an exceptionally difficult task that has spilled into a political fight we wish we could have avoided. But with a little bit of luck and leadership, a resolution will be found in this ugly little lame-duck session of Congress.