Although the witnesses represented a range of viewpoints, there was a remarkable amount of agreement among them as to what should be done about the Terrorism Risk Insurance Act (TRIA), which once again is coming up for renewal. Unless it is renewed, it will expire on December 31, 2014. And even though there was a large area of agreement, there were also some differences. Those differences could make it difficult to get a reauthorization bill through the Congress. 

Here is what everyone agreed on, both the witnesses and Members of the Committee and Subcommittee who spoke during the hearing: 

• TRIA has worked exactly as intended. That is, because of the federal backstop, a private market for terrorism risk has stabilized and grown.  Terrorism risk coverage is generally widely available and reasonably priced.  The capacity of the private insurance industry to cover losses from any future terrorism attack is much greater than at any time since 9-11 and is growing.
• The federal backstop has not cost taxpayers a dime. Because no terrorism event since the Act was passed has exceeded the thresholds or tripped the triggers, the federal government has not had to pay out any money so far.
• Nevertheless, TRIA should be renewed once more because, at least in the short term, failure to renew will result in a sharp constriction in the market. Terrorism coverage will become more difficult to get and more expensive. No one thought there would be no coverage available at all for terrorism risk if TRIA were not renewed, but such insurance as would be available would be more expensive and would have exclusions and gaps in coverage. One witness, Robert Hartwig of the Insurance Information Institute, said it would resemble Swiss cheese.
• Although not everyone agreed that changes to TRIA are necessary, all agreed that whatever changes are made should be implemented over a period of time, phased in so as not to unduly rile the market, especially for smaller insurers who provide a considerable amount of the coverage currently available.
• All agreed that whatever is done—whether renewal without change or renewal with major changes, or even non-renewal—it should be done sooner rather than later, because insurance contracts for 2015 are already being negotiated.  

Now for the differences: 

• Some thought that the program has served its purpose as a temporary measure and now the markets should be allowed to take over with no further help from the federal government. The witness who most closely held this view was Kean Driscoll, CEO of Validus Reinsurance, which, according to Driscoll, is the largest writer of stand-along terrorism risk insurance in the world. But even he did not think TRIA should be allowed to expire right away.  Rather, he foresaw a period of years during which it could be phased out. And even Driscoll thought that the federal backstop would be necessary on a permanent basis for so-called NBCR terrorism risks—that is, terrorism using nuclear, biological, chemical or radiological agents—and for cyber terrorism. Driscoll thought the private insurance market would never be able to handle those without a backstop.  But conventional terrorism risk, he thought, could eventually be handled by the private market without a federal backstop.  Another witness, Ernest Csiszar, a former state insurance commissioner (South Carolina) and former president of the NAIC, thought that the trigger should be raised from the current $100 million in total losses before the federal backstop comes into play to as high at $15 to $20 billion in losses. But, Csiszar cautioned, that it should happen in phases, over a period of five to 10 years. Another witness, Robert Hartwig, thought that the current $100 million trigger had worked well and had kept prices low. He saw no reason to change it. Among members of the Financial Services Committee who spoke at the hearing, it was clear that the Democrats favored keeping TRIA as is, fearing that increasing the trigger would simply mean higher prices for purchasers of insurance for no benefit. Republican members wanted to see the free market take over the program entirely, at least eventually, but did not dispute that this would mean higher prices.
• The dispute is philosophical rather than practical. All agree that TRIA has allowed the private markets to grow and prosper. Democrats believe that it should, therefore, be made permanent, whereas Republicans draw the opposite conclusion; if the private market is working well now, let's get the federal government out of it.
• One witness, Sean McGovern of Lloyd's of London, pointed out that all the large European nations have permanent backstops in place for their private market terrorism risk providers. A subcommittee member pointed out that the UK Government required insurers to pay premiums for this "reinsurance" while the U.S. Government does not. But McGovern said that the premium payments are put into a pool for payment of terrorism losses, something that would not be possible under current U.S. tax laws. 

Based on listening to the hearing, it is my view that TRIA will be extended and not allowed to expire on December 31, 2014.  No one, not even the most ardent free market proponents, argued that the program should be allowed to lapse at this point.  Rather the question is whether it should be extended as it exists today or if it should be modified with the aim of eventually doing away with a federal backstop entirely. Since the Democrats generally believe that the system is working well as it exists today, keeping prices low and coverage widely available without any cost (so far) to the taxpayers, they are not likely to go along with any attempt to change it — which will undoubtedly mean higher costs for consumers — just to satisfy a philosophical position that the government should not get involved with the free market. Republicans generally want to see the government, eventually, out of the insurance market place, even for terrorism insurance, believing that the private market can and should handle the risks. Meanwhile, the industry, which can handle much of the risk, believes that it cannot handle all of it, and certainly not NBCR risks.  Since the chairman of the full Financial Services Committee, Jeb Hensarling of Texas, is a strong free market advocate, who voted against extended TRIA the two previous times it was renewed, and who will therefore not be willing to push forward a renewal bill without major changes, the odds are that the extension, when it comes, will be at the last possible minute.  

That means that insurers must plan for all contingencies — that TRIA will be extended as is for a longer period of time (five to 10 years), that it will extended for a shorter period of time, and with higher triggers and copayments by the industry, and that it will not be extended at all (not likely, but certainly possible). How can this be done, when negotiations are already taking place for insurance that will come into effect in 2015? The answer is that it will be very difficult and costly, but policies must be able to provide for all contingencies.