Committee draft of terrorism coverage bill divides industry

The House Financial Services Committee is poised to unveil legislation that would reauthorize the federal government's terrorism risk insurance program with a provision that would require carriers to make available coverage of a nuclear, biological, chemical or radiological attack.

The draft bill, according to sources, would pit different segments of the insurance industry against each other over the provision to include coverage of a nuclear, biological, chemical or radiological attack with a 7.5 percent insurer deductible. "The jury is still out on this [provision]," said one lobbyist.

The American Insurance Association and large policyholders with hotel and retail properties back the inclusion for such coverage, but it is opposed by the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies, which argue that it would result in massive risk exposures for smaller companies.

"Getting some availability of [nuclear, biological, chemical or radiological] coverage, we're fine with that. We just think that the government should give incentives to the private sector to do it rather than mandating it in a way that is market inefficient, and creates dislocations and potentially bankruptcies," said Ben McKay, senior vice president for federal government relations at the Property Casualty Insurers Association of America.

Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa., has scheduled a Thursday hearing for witnesses to offer opinions on the measure to reauthorize the program that expires at year's end. A markup is expected before the August recess.

The draft bill also would lower the program's trigger from the current $100 million to $50 million, which was a provision that NAMIC lobbied for because it would allow smaller carriers to participate. The draft would reauthorize the program for 10 years.

Senate Banking Chairman Christopher Dodd, D-Conn., has called for a permanent reauthorization of the program. The draft also would maintain the $100 billion program cap and contains additional language to further provide "finite liability limits" for insurers and the federal government.

Another provision would clarify that a carrier's exposure is limited to its deducible and co-payments, and claims concerning these limits would be consolidated in federal court. The draft would add group life insurance coverage to the program, which will please the American Council of Life Insurers. It would include coverage for acts of domestic terrorism; current law applies only to acts of foreign terrorism as certified by the Treasury and State departments as well as the attorney general.