WASHINGTON – The House Wednesday passed a long-sought legislation to renew a government program that’s credited with reviving the market for insurance against terrorist attacks after the Sept. 11 attacks.
But the measure, despite passing by a 417-7 vote, has run into trouble in the Senate because of opposition to an unrelated item involving a rewrite of a provision of the 2010 Dodd-Frank overhaul of financial services regulations and opposition to an obscure provision involving the licensing of insurance agents.
The terrorism risk insurance program was originally enacted in 2002 after the 9-11 attacks led the private market for terrorism insurance to collapse. It provides a government backstop for private insurance companies in the event of catastrophic losses.
The legislation is important to economic sectors such as construction, real estate, hospitality and major sports leagues, which fear crippling insurance costs if the program expires and rates skyrocket — or the market for terrorism insurance collapses altogether.
Under the law, the government covers 85 per cent of losses after the first $100 million in damages from a terrorist attack. The government has never paid out under the law, and terrorism insurance is less costly, but the hoped-for revival of private-sector alternatives has failed to occur.
“Sadly, terrorism will be an ongoing threat to our nation for the foreseeable future, so it is vital that we remain prepared,” House Rules Committee Chairman Pete Sessions, R-Texas, said. “The cost of terrorism still looms large, and acts of terrorism are uninsurable risks that could sink our insurance markets without this program.”
Wednesday’s legislation would reauthorize the program for six years and decrease the government’s exposure by gradually increasing the “trigger” at which the program kicks in to $200 million. The government’s share of catastrophic losses would be gradually lowered to 80 per cent.
The terrorism insurance portion of the bill has wide support, but Democrats controlling the Senate are objecting to unrelated legislation that seeks to protect businesses that use financial instruments called derivatives to hedge risk from being subjected to costly margin requirements under Dodd-Frank regulations. Those businesses, including farmers and ranchers, airlines and manufacturers, are already protected under the terms of the law and follow-up regulations, but such “end users” of derivatives are concerned that they could get snared by future regulations.
The derivatives measure passed as stand-alone legislation on a 411-12 vote last year but is opposed by several Senate Democrats. Its inclusion could trip up the measure in the Senate, where any individual senator has the power to stall legislation. In addition, Sen. Tom Coburn, R-Okla., opposes an obscure add-on that establishes a National Association of Registered Agents and Brokers that would license insurance agents and brokers to operate in multiple states.
Insurance is regulated by the states and Coburn said he wants a provision added to permit states to opt out of the multistate licensing system and that he’ll block any request to expedite a floor vote on the House bill.
“We’re totally taking away the right of a state to control its own destiny in terms of insurance,” Coburn said. “I’ll be fighting the House bill.”
Senate opponents say the derivative measure is redundant because end users of derivatives already have an exemption to margin requirements. They warn that the legislation would expand the exemption and shut off the possibility of future regulations if circumstances warrant it.
The White House issued a statement praising the terrorism insurance measure but strongly opposing adding the derivatives changes to the legislation.