Other provisions seeking to reaffirm state oversight of insurance could also be proposed, although industry lobbyists say the battle over that issue is more likely to come up when the House acts on TRIA. 

For example, 49 House members sent a letter to the House Appropriations Committee May 29 asking that 48 other members requesting legislative and report language in the Treasury and Federal Reserve Board appropriation bills designed to ensure that U.S. federal officials halt negotiating European-centric, bank-like capital standards for internationally active U.S. insurers.

Reauthorization of TRIA is the top federal legislative priority for the insurance industry, and reporting out of the Senate bill, which is expected to be routine, is seen as just the start of a tense legislative process.

The industry has concerns about the bill because it would increase the losses insurers must cover by $10 billion to $37.5 billion and would also increase the percentage insurers would have to pay for certain losses to 20% (from 15%), according to John Dearie, an insurance attorney at Edwards Wildman in New York.

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, agreed.

He said NAMIC "still has some concern with increasing the co-payment provision by 33%. The co-payment is the only aspect of the program without a specific dollar threshold or limit, and it's also the most difficult for companies to gauge in terms of their potential risk. 

Grande argues, "The entire goal of the TRIA program is to reduce the uncertainty surrounding terrorism risk, and we hope that this can be addressed when the bill moves to the Senate floor for final passage."

Grande says he has met with members of the Senate Banking Panel on this issue, and "based on what we heard during the TRIA hearing in February, I think the vote will show that members of the committee recognize the importance of keeping the TRIA program, both for its role in fostering growth as well as a part of our national economic defense."

He adds it is "most important is keeping the process moving forward – every day that goes by without reauthorization of the program increases the uncertainty in the marketplace."

More important to the industry than the additional "skin in the game" proposed in the Senate bill is the looming battle regarding reauthorization in the House Financial Services Committee. The House FSC plans to take up legislation later this month that would effectively end the program as it currently exists after three years.

The House bill, tentatively called the TRIM Act, or Terrorism Risk Insurance Modernization Act, as recently leaked by some Republican members of the committee, would bar any federal coverage for any event other than that caused by a nuclear, biological, chemical radiation (NBCR) event for any event of less than $500 million after the initial, three-year phase-in period.

It would also require insurers to deposit 50% of terrorism risk insurance premiums in a special fund that would be administered by the Treasury Department.

Rep. Randy Neugebauer, R-Texas, chairman of the Financial Services Panel's Housing and Insurance Subcommittee, and Rep. Jeb Hensarling, R-Texas, chairman of the FSC, say that while they would likely compromise to extend the program for up to five years, over the long term they desire that the industry assume all responsibility for terrorism events except for NCBR. Their argument is that the program was created in 2002 only as a temporary measure, and that their actions are consistent with that intent.

Dearie says while the Senate bill is welcomed by most insurer groups, it will not prevent the potential disruption in the market or the ongoing uncertainty of reauthorization.

Dearie says until legislation is final, property and casualty carriers "would be well advised" to include conditional language in their policies in case TRIA does not get extended post Dec. 31, or is not reauthorized under its current terms.

"As terrorism insurance backed by TRIA under the proposed [Senate] legislation does not include coverage for certain risks, such as nuclear, biological, chemical or radiological attacks, some business owners may wish to supplement their terrorism coverage by using their captive insurers to take on these additional risks," Dearie says he is advising clients.