Monday, March 10, 2014

TRIA and Party Out of Bounds

Insurance is the lubricant of our financial engine. It is what keeps the gears of industry turning and the hum of the economy constant.

Without insurance, the business world is much less inclined to take on risk, and without an appetite for risk innovation stifles. When innovation stops, economic opportunity falters, which means people run out of things to build, people to service, and jobs disappear.

I know that's a simplistic statement of the role insurance plays in our modern economy, but when distilled to the basics, it is reasonably accurate.

Which is why I don't understand why self-described conservative members of Congress would have any issue reauthorizing the Terrorism Risk Insurance Act which set to expire at year's end.

Congress enacted TRIA in 2002, in response to complaints that terrorism insurance was either becoming unavailable, or when offered, was extremely costly in the wake of oh nine eleven. The law provides a government reinsurance backstop in the case of a terrorist attack by providing mechanisms for avoiding an immediate drawdown of capital for insured losses or possibly covering the most extreme losses. Extended first in 2005 and again in 2007, it is up again for renewal.

In TRIA's current form, a single terrorist act must cause $5 million in damages to be certified for TRIA coverage. Then the aggregate insured loss from certified acts of terrorism must be $100 million in a year for the government to get involved. After that an insurer must pay a deductible of 20% of its annual premiums for the government coverage to begin.

Once those thresholds are passed, the government covers 85% of insured losses from a terrorist attack. If insured losses to terrorism do not exceed $27.5 billion, the Secretary of the Treasury is required to recoup 133% of the government coverage by 2017 through surcharges on property/casualty policies. But if losses exceed $27.5 billion, the secretary has the discretion to recoup surcharges or not.

There are three potential TRIA extension bills: HR 508, is considered the lead TRIA reauthorization bill in Congress with 84 co-sponsors. Rep. Michael Grimm, D-New York, introduced the measure on Feb. 5.

Two other House reauthorization bills were filed last May - HR 2146, authored by Rep. Michael Capuano, D-Mass., and HR 1945, by Rep. Bennie Thompson, D-Miss. They lack the backing of Grimm's bill, according to industry observers.
HR 508 is now in the Subcommittee on Insurance, which is under the House Financial Services Committee.

There are currently no Senate TRIA reauthorization bills, but solid rumor has it that Sens. Tim Johnson, (D-S.D.), who chairs the committee and Mike Crapo, (R-Idaho), ranking member of the committee, intend to propose a bi-partisan TRIA reauthorization bill.

The holdup in passing TRIA, according to observers, is that the extreme conservative faction of the Republican party (the ones that have an affinity for tea) see it as a government handout, so even Republicans that are in favor of the bill - those from states with large employers and insurance company backing - want to wait until after November elections so they don't alienate potential votes.

It seems that the overall sentiment, though, is to get an extension passed.

Failure to provide the insurance community with some level of security in the face of a huge catastrophic loss ultimately will inhibit the ability of the American economy to grow and provide the jobs that are needed for the government to collect taxes and provide the services necessary to keep the populace content.

Indeed, last week the Rand Corp. released a study cited widely by insurers that concluded that renewing TRIA would contribute to improved national security.

And the reason is obvious - the whole point of terrorism is to strike fear, and the best way to strike fear is to disrupt lives and infiltrate the financial system by setting up events that cause dislocation of resources.

If TRIA is in place then there is less incentive to commit terrorism because the net effect is minimal disruption.

Seems to me that brewing tea took the Party Out Of Bounds:

"People get sick, they play the wrong games.
Ya know, it can ruin your name!"

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