Warren Heck, chairman/CEO of the Greater New York Mutual Insurance Company and NAMIC member, testified last week before a House subcommittee on the importance of removing a make-available mandate from a proposal to extend the Terrorism Risk Insurance Act.
Heck presented a compelling argument for the removal of nuclear, biological, chemical, and radiological coverage from the TRIA proposal. He was, in fact, the most outspoken witness against the NBCR provision to testify before the House Financial Services’ Subcommittee on Capital Markets last Thursday.
“To have companies fail at a time when there’s such chaos in the country … doesn’t make sense.” With that, Heck described to members of the subcommittee the likely scenario after an attack by weapons of mass destruction if Congress expands TRIA to include the provision.
Testifying for both NAMIC and the Property Casualty Insurers Association of America, Heck said the NBCR provision could be devastating for small- and medium-sized companies, which comprise the majority of the insurance industry. “Importantly, because insurers would be immediately required to have capital sufficient to back this new risk and would face potentially reduced financial strength ratings, we would also expect to see an immediate diminution of capacity available to provide this coverage. Many small mutual insurers would probably not be able to raise sufficient capital quickly enough to stay in this business."
Heck commended the bill’s sponsors for including provisions that will help smaller insurance companies participate in TRIA, including a longer-term extension of the program to 10 years, a reduced trigger level — from $100 million to $50 million — and the elimination of the distinction for domestic terrorism.
He also agreed to meet with members of the subcommittee and the U.S. Treasury Department to discuss other ideas to address the NBCR issue. Subcommittee Chairman Paul Kanjorski, D-Penn., requested the meeting after hearing from David G. Nason, the Treasury Department’s assistant secretary for financial institutions.
Nason said the Bush administration does not endorse the NBCR provision. However, he said the proposal should be geared more toward private-sector involvement with less onus on the government. “The administration believes that three elements are critical if TRIA is to be reauthorized for a second time: the program remains temporary and short-term; private-sector retentions are increased; and there is no expansion of the program,” he said. “Treasury cannot support efforts that move the program in a direction that is inconsistent with these key elements.”
Kanjorsi said at this point he favors including the NBCR provision. “I know that some parties in the insurance world have raised concerns about these NBCR provisions. I want them all to know that I am very open to considering how we can improve them. We, however, should not ultimately decide to continue to study this problem. We need to act.”
The battle to remove the NBCR language from the TRIA proposal remains an uphill one. Financial Services’ Committee Chairman Barney Frank, D-Mass., said that while he sympathizes with the plight of insurers, he’s more concerned with the commercial real estate industry. “If we don’t provide this [NBCR], then in some cases banks won’t lend the money necessary for large commercial building. That will have an effect on the economy,” he said.
The subcommittee also heard from representatives for the AIA, the Coalition to Insure Against Terrorism, the Council of Insurance Agents and Brokers, Host Hotels and Resorts Incorporated, Independent Insurance Agents & Brokers of America, the Wharton School, the Reinsurance Association of America, and Missouri Employers Mutual Insurance.
Direct questions to NAMIC’s Senior Federal Affairs Director Marliss Browder.
Posted: Tuesday, June 26, 2007 12:00:00 AM. Modified: Tuesday, June 26, 2007 10:14:30 AM.
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