On Wednesday, December 10, 2014, the House will consider S. 2244, the Terrorism Risk Insurance Program Reauthorization Act of 2014, under a rule. A substitute amendment submitted by Rep. Randy Neugebauer (R-TX) will be offered.
The Amendment in the Nature of a Substitute extends the authorization of the Terrorism Risk Insurance Act (TRIA) of 2002 for six years until December 31, 2020. The amendment also phases in a new program trigger for all certified acts of terrorism from $100 million to $200 million by 2020.
This legislation further requires the Secretary of the Treasury, within nine months of the bill’s enactment, to conduct and complete a study on the certification process. Moreover, within two years of enactment, the Comptroller General is required to complete a study on the feasibility and effects of the Federal Government: 1) assessing and collecting upfront premiums on insurers that participate in TRIA; and 2) creating a capital reserve fund under the Program and requiring participating insurers to dedicate capital specifically for terrorism losses. The bill also requires the Secretary of the Treasury to establish the Advisory Committee on Risk-Sharing Mechanisms, which will provide advice and recommendations with respect to the creation and development of nongovernmental risk-sharing mechanisms.
During the calendar year beginning on January 1, 2016, insurers participating in TRIA will be required to provide information regarding insurance coverage for terrorism losses, including: 1) lines of insurance with exposure to such losses; 2) premiums earned on such coverage; 3) geographical location of exposures; 4) pricing of such coverage; 5) the take-up rate for such coverage; and 6) the amount of private reinsurance for acts of terrorism purchased. Starting June, 2016, the Secretary of the Treasury is required to report to Congress on the overall effectiveness of the program; any changes in data; whether any aspects of the Program are discouraging insurers from providing commercial property casualty coverage; and the impact of the Program on workers’ compensation insurers. Finally, this legislation requires the Secretary to conduct a yearly study of small insurers to assess the competitive challenges small insurers face in the terrorism risk insurance marketplace.
This legislation also contains two other policy provisions. Title II of the amendment contains the National Association of Registered Agents and Brokers Reform Act of 2014. The provision, originally introduced as H.R. 1155, passed in the House on September 10, 2013 by a vote of 397-6 (See Roll Call #450). This provision establishes the National Association of Registered Agents and Brokers (NARAB), an independent nonprofit corporation, which would serve as a national clearinghouse for insurance agents and brokers to obtain approval to operate on a multi-state basis. However, this legislation would still preserve state’s regulatory authority over marketplace activity and their ability to enforce important consumer protection laws.
NARAB would be authorized to: 1) establish membership criteria, including requiring criminal background checks; and 2) deny membership based upon information obtained. The provision authorizes NARAB to establish classes of membership, membership criteria, and deny membership for failure to meet criteria. Furthermore, this provision requires NARAB to receive and investigate consumer complaints via a toll-free telephone number, and to refer complaints to the state insurance regulator. Finally, the provision authorizes NARAB to coordinate with state regulators to establish a central clearinghouse and a national database for collecting regulatory information.
Title III of the amendment contains H.R. 634, the Business Risk Mitigation and Price Stabilization Act of 2014. H.R. 634 passed the House on June 12, 2013 by a vote of 411-12 (See Roll Call #215). The provision amends Dodd-Frank to clarify that the Act’s margin requirements do not apply to the end-users of derivatives. The bill also stipulates that the bill is to be implemented through a modified regulatory process, preventing the regulatory process from starting de novo.
 The program triggers will phase in as follows: $100 million in 2015; $120 million in 2016; $140 million in 2017; $160 million in 2018; $180 million in 2019; and $200 million in 2020. Also note: Certification of Acts of Terrorism, under the amendment, must be executed in consultation with the Secretary of Homeland Security.
“Prior to the September 2001 terrorist attacks on the United States, insurers generally did not exclude or separately charge for coverage of terrorism risks.” September 11, 2001 changed this as insurers realized the financial impact of terrorist attacks (the September 11, 2001 attacks resulted in over $40 billion in losses). The heaviest losses from the September 11, 2001 attacks were absorbed by foreign and domestic reinsurers. These losses, coupled with a lack of public data and modeling on the scope of the terrorism risk, led many reinsurers to withdraw from the terrorism risk insurance market. As a result, primary insurers withdrew from the market, which greatly decreased the availability of insurance to consumers.
“In November 2002, Congress responded to the fears of economic damage due to the absence of commercially available coverage for terrorism with passage of the Terrorism Risk Insurance Act (TRIA).” The Act created a three-year Program to provide a government reinsurance backstop for acts of terrorism. The program was amended and extended in 2005 and 2007, and is set to expire at the end of 2014.
 Baird Webel, “Terrorism Risk Insurance: Issue Analysis and Overview of Current Program,” Congressional Research Service (Jul. 23, 2014), at 1.
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CBO estimates that the substitute amendment would reduce the deficit by approximately $147 million over the 2015-2019 window, and by $456 million over the 2015-2024 window.
For questions or further information contact the GOP Conference at 5-5107.