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Under the Dome by Joel Wood Nuking TRIA

It could be a tough fall for renewing the federal terrorism backstop. A compromise in the works? Let’s hope it doesn’t go down to the wire.

By  Joel Wood

The House Financial Services Committee had just approved an amendment to extend from 10 to 15 the number of years for a newly structured Terrorism Risk Insurance Act, along with a number of bells and whistles. Rep. Spencer Bachus, R-Ala., troubled by the fact that the program he had long supported was becoming “too rich,” invoked the old adage that “pigs get fat; hogs get slaughtered.”

Committee Chairman Barney Frank, D-Mass., (who has a collegial relationship with Bachus) pounced. “The potential targets of terrorism are not pigs and they are not hogs,” he said with indignation. “Policyholders and the companies that insure them are not pigs and they’re not hogs.” It was classic Barney Frank—withering articulation at lightning speed. Within a few minutes, the bill passed through the committee by a comfortable margin.

Sitting in the audience, I sympathized with both men. Frank, an unabashed Northeastern liberal, believes that protecting Americans from the economic risk of terrorist acts is a fundamental obligation of government. So the bill he championed (which will easily win approval from the full House this month) significantly expanded not only the length of the reinsurance backstop, but its breadth. It included group life in the scope of coverage, even though many argue there is no private reinsurance gap for such products. It dramatically lowered the “trigger” for the scale of a terrorism event that would be picked up by the feds. And it included a Council-supported provision to cover acts of nuclear, biological, chemical and radiation terror (NBCR), in exchange for a mandatory “make-available” provision for insurers to offer such coverage. All of this is gratifying for brokers who need to make sure that their clients are fully protected.

But Bachus’s political concerns are likewise sensible. Immediately following the committee’s action, the Treasury Department released a strong statement of opposition: “The Administration has frequently stated the need for three critical elements in TRIA reauthorization: the program should remain temporary and short-term, with no expansion and a continued increase of private sector retention. Today’s effort to extend TRIA does not meet these standards for an improved market and we strongly oppose this bill.”

The Treasury statement was interesting in that it did not threaten a presidential veto. And Chairman Frank was quick to quote from Treasury Secretary Hank Paulson’s letter two years ago in strong support of TRIA, when he was the chairman of Goldman Sachs.

Bachus also is acutely aware that his home-state counterpart, Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, is widely considered the Administration’s stalking horse on the terrorism reinsurance issue and has long been skeptical about whether TRIA is “crowding out” private sector innovation. Banking Chairman Chris Dodd, D-Conn., meanwhile, has been running for president (FEC reports will note that this dutiful Republican insurance lobbyist is a maxed-out contributor to his campaign!) and supports a “permanent” mechanism for terrorism coverage. This puts Dodd, strategically at least, on the opposite end of the spectrum from his ranking Republican member.

If Dodd wants to force a committee vote this month on a program that is as “rich” as the House Financial Services Committee’s bill, he’d probably win, perhaps with some Republican support. But it isn’t his style, and it isn’t the culture of the Senate Banking Committee, to have partisan votes on core financial institutions issues. Dodd feels the pressure from the industry and policyholder lobbyists to fill all the gaps in a TRIA bill, but he also is trying to strike a compromise on a committee that generally governs by consensus.

The magic number in the Senate, of course, isn’t 51 votes but 60—the number required to cut off debate. If Shelby isn’t on board with a TRIA compromise with Dodd, then he might be able to persuade 40 of his Republican colleagues to join with him in opposing it.
That’s a nightmare scenario and one that would virtually assure that this debate will continue all the way down the stretch, approaching the Dec. 31 sunset of the existing TRIA extension, creating provisional exclusions in policy terms and massive confusion and bureaucratic headaches as brokers approach Jan. 1 renewals.

Headed into the August congressional recess, Congress had produced little, and partisan tensions were absurdly high. Even the simplest of bills has had great difficulty in seeing the light of day on the Senate floor. Things are awful. But I will go out on a limb, make a prediction and be prepared to apologize for it in this column if it doesn’t play out.

Dodd and Shelby will reach a compromise in the fall. It will look pretty much like a straight extension of the existing program, in the seven- to eight-year range. The final bill negotiated between the House and the Senate, due to the Law of Congressional Lowest Denominator, will look much more like the Senate bill. With some trepidation, I predict that the NBCR provisions won’t survive the process.

And President Bush will sign the law. There you have it.

Wood is the Council’s senior vp of Government Affairs.

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