Baker Says Congress Moving Quickly On TRIA

By Matt Brady

NU Online News Service, March 3, 4:11 p.m. EST, Washington?The head of a key House panel said he thought efforts to extend the Terrorism Risk Insurance Act are proceeding at a good pace.[@@]

Speaking Thursday at a Washington luncheon, Rep. Richard Baker, R-La., who chairs the House Financial Services Subcommittee on Capital Markets, said that congressional efforts to reform state insurance regulation are moving "ahead of the crisis."

That response, he noted, is contrary to the usual congressional style of reacting. Key to the regulatory reform effort is the State Modernization and Regulatory Transparency (SMART) Act Rep. Baker has drafted with Financial Services committee chairman Mike Oxley, R-Ohio, which Rep. Baker said will "enhance market function while stopping short of a true federal charter."

The debate over whether to include price controls in the reform effort, he said, is ongoing, but Rep. Baker added that he prefers a consumerist approach in which the market is given relatively free rein but also charged with the responsibility of guarding its own financial health.

Rep. Baker used the metaphor of an "economic pasture," saying he favored "taking down all the fences and letting the industry eat as much grass as it likes." However, he added, if the industry gets "sick" then "that's their own problem."

The SMART Act, Rep. Baker said, will likely be taken up by the committee in late summer or early fall. He added that he would prefer it were taken up "as soon as possible," but the bill will have to wait in line behind legislation reforming Government Sponsored Enterprise and another industry priority, the Terrorism Risk Insurance Act extension.

Extending the TRIA program would maintain the federal backstop for terrorism reinsurance, which Rep. Baker said is "warranted in light of the challenges we face."

The insurance industry has maintained that without federal backing, insurers would be forced to either exclude terrorism coverage or face potential insolvency in the wake of a major attack. "There is no public interest," Rep. Baker said, "in allowing companies to become insolvent in the face of terrorism."

In extending TRIA, Rep. Baker said that Congress will not make the same mistake it did in bailing out the airlines after Sept. 11, 2001, and that he supported a repayment provision that "does not adversely affect" the solvency of a company.

Additionally, he addressed the concerns voiced by some members of Congress that the TRIA program, through extensions, could become a long-term liability for the federal government. Baker said these concerns would be addressed in the extension legislation, which will differ somewhat from the original TRIA bill. "We can't introduce the same structure," he said, adding that the program is still needed and that members must be made aware of the "consequences of not having a backstop."