Washington–Federal Reserve Board chairman Alan Greenspan gave measured support to extension of the Terrorism Risk Insurance Act today and a House subcommittee scheduled a hearing on the issue for next Wednesday.
Meanwhile, insurance organization lobbyists said that another key piece of legislation involving the insurance industry, the State Modernization and Regulatory Transparency Act (SMART) will apparently have its introduction delayed until Congress returns to work after Labor Day.
The SMART bill would establish federal standards for state insurance regulation and is being promoted by both the life and property-casualty industries. But delay in introducing the bill, especially given the coming battle over a Supreme Court justice, could push action on such into next year, as well as reduce momentum for such a bill.
One insurance industry lobbyist, who asked not to be identified, said the reason for the delay is that action on TRIA, the federal insurance backstop due to expire at the end of the year, "is paramount, and the energy needed to deal with work on the extension is squeezing the oxygen out of action on SMART."
Mr. Greenspan, in comments to the House Financial Services Committee on monetary policy and the state of the economy, said some extension of TRIA is needed because the risk of losses from terror attacks are too great for private insurance markets to handle, and some government backing must be involved.
"I think that what Congress has got to do is to recognize it's a tradeoff == that is, so long as we have terrorism that has the capability of a very substantial scope of damage, there is no way you can expect (the) private insurance system to handle that," Mr. Greenspan said.
Mr. Greenspan said government backing is necessary, but he cautioned that Congress should take care to not go too far.
"We have to be careful in creating whatever we do in a government insurance or reinsurance to make certain we do not go beyond the point which is necessary, because obviously everybody likes free goods … But I don't see how we can avoid the issue of a significant segment of government-backed reinsurance in this particular area," he said.
Regarding a TRIA hearing, the Capital Markets Subcommittee is planning another hearing on the issue for Wednesday, July 27. Industry officials are being invited to attend, and extending an invitation to one or more state insurance commissioners is also being considered, one source familiar with the issue said.
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