Insurance Industry ‘Disappointed’ by Senate’s Non-Renewal of TRIA

Last week’s optimism about the possible reauthorization of the Terrorism Risk Insurance Act was replaced by “disappointment” today, as the insurance industry sounded off about the Senate’s failure to pass the House-approved TRIA bill before adjourning. TRIA, the federal insurance backstop that requires insurers to offer terrorism insurance coverage to policyholders, is set to expire on Dec. 31, 2014. More than 60 percent of all U.S. businesses purchase terrorism insurance coverage, according to Marsh USA.

“A major terrorist attack occurring without a TRIA law on the books will be far more disruptive to the U.S. economy than one where TRIA is in place,” Robert Hartwig, Ph.D., president of the Insurance Information Institute and economist said in a statement. “Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real estate industries, among others. For instance, a theatre owner hosting a controversial movie premiere on Christmas Day may have insurance coverage for losses triggered by an act of terrorism but this same business might not have it if a comparable attack were to occur on New Year’s Day.”

The Coalition to Insure Against Terrorism (CIAT) spokesperson Marty DePoy said, “CIAT is incredibly disappointed that the Senate chose to adjourn without reauthorizing the Terrorism Risk Insurance Act, a program that since 9/11 has provided critical stability to the marketplace against another terrorist attack. This is a bipartisan failure; the 113th Congress has let down American workers, American businesses and jeopardized U.S. economic and national security. CIAT urges the new Congress to make TRIA reauthorization its top priority in January and immediately vote to extend the program for the long-term.”

RIMS President Carolyn Snow echoed disappointment. “We are extremely disappointed that Congress failed to pass an extension of TRIA, despite strong bipartisan support. The program’s expiration will have many negative repercussions for commercial insurance consumers, the countless organizations they represent and the U.S. economy as a whole.”

She noted that since its inception, “TRIA has stabilized the marketplace by providing adequate capacity at affordable rates. Its expiration will almost certainly cause rates to rise, placing many lending agreements in jeopardy and forcing some organizations to self-insure or simply go without.”

Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), said AIA is “incredibly disappointed,” adding that by letting TRIA lapse, “Congress has failed to protect taxpayers and the economy.”

She said, “Without TRIA in place on Jan. 1, insurers will be forced to assess their exposures. The program’s lapse will significantly jeopardize the terrorism insurance marketplace that currently protects our nation’s economy against major acts of terrorism. We strongly urge the new Congress to take up the House-Senate negotiated TRIA reauthorization package as its first item of business when it returns in January in order to minimize marketplace disruptions.”

Global risk advisor, Willis expressed disappointment as well, noting that its biggest concern is that Clients “will need help in reevaluating their risk exposures according to the changed environment where TRIA is no longer available as a back stop for the insurance market place. Of particular concern is where clients have loan covenants that determine the type and amount of terrorism insurance coverage that is required.”

Mike Becker, executive vice president and chief executive officer of the National Association of Professional Insurance Agents observed, “Disagreement won the day and politics took precedence over protecting the American people. There was overwhelming bipartisan support to renew TRIA, with both parties showing strong leadership to get a compromise deal done in recent weeks. That support was nearly unanimous, with the House approving the TRIA renewal deal 417-7 last week, and the Senate having already passed a similar version 93-4 last July.”

Snow concluded, “RIMS and many other organizations have been pushing Congress to pass an extension for the past two years but Congress senselessly ignored those concerns and waited until the very last moment. This delay has ultimately led to the worst possible outcome.”

Insurance Industry Encouraged About TRIA Renewal

The House Republicans’ proposed bill to extend the Terrorism Risk Insurance Act (TRIA), set to expire at the end of this year, is “encouraging,” but there are also concerns, insurance industry experts say.

Representative Randy Neugebauer (R-Texas) introduced the TRIA Reform Act of 2014 on June 17, which would modify and extend TRIA. TRIA provides a government backstop for insurers and reinsurers in the event of a catastrophic terrorist attack. The proposed bill would extend the program for five years and make insurers more active participants in the market, according to American Banker. The proposed bill also distinguishes attacks that are nuclear, chemical, biological or radiological (NBCR) from other terrorist attacks and increases the industry’s cost for conventional attacks.

Earlier in June, the Senate Banking Committee approved a bill that would extend TRIA for seven years, increase insurers’ co-pay for all attacks from 15% to 20% after a deductible, and increase the threshold for mandatory recoupment from $27.5 billion to $37.5 billion.

“The House bill is a very encouraging sign, especially because it comes on the heels of the Senate bill (S.B. 2244) a few weeks ago,” said Robert P. Hartwig, president and economist of the Insurance Information Institute. “Though the bills contain substantive differences, I think a compromise can and will be reached. Time is of the essence as the uncertainly in the markets is already causing disruptions in the form of exclusionary language and because it is an election year there are relatively few days left on the Congressional calendar.”

American Insurance Association (AIA) President Leigh Ann Pusey lauded introduction of the bill, saying that it “adds to the growing momentum behind TRIA’s reauthorization in both the House and Senate. We urge the Committee to swiftly mark up the TRIA Reform Act and move it to the House floor for a vote before the August recess.”

The new law would progressively raise the program’s threshold following conventional attacks from $100 million to $500 million. Insurers would make a 20% copayment after a deductible in the wake of a conventional attack, compared to 15% for NBCR attacks.

Hartwig noted that the insurance industry has some concerns related to the “bifurcation” of NBCR and non-NBCR risks. “Under the bill, non-NBCR risk would be subject to the increased trigger which would rise from its current $100 million to $500 million by 2019,” he said. “Likewise, there’s concern about the increase in the industry’s co-share from 15% to 20%. In both instances, the increase in the industry exposure to potential loss could result in reduced capacity, particularly capacity originating with smaller insurers. The bifurcation also adds an unnecessary layer of complexity to the process.”

In a statement, Pusey also expressed concern “with certain provisions of the bill that could lead to decreased market capacity. Most notably, the creation of a bifurcated approach for nuclear, biological, radiological and chemical (NBCR) attacks vs. conventional attacks falsely assumes that the insurance market operates based on the same distinctions.” She said that differentiation based on the type of event introduces “needless complexity, creating potentially adverse consequences under the program and insurance market capacity. We are also concerned about the steep increase in the program trigger and co-share, which could also lead to a reduction in capacity.”

Hartwig concluded that while the success of TRIA is “unambiguous, providing continuous benefits to the American economy at essentially no cost to taxpayers, the current resurgence of terrorism in Iraq reminds us that the threat of terrorism is omnipresent.”

He added that some TRIA opponents cite that the bill was originally designed as a temporary measure. “While that may be so, the past 13 years have demonstrated that the U.S. remains under constant threat. Last year’s Boston Marathon bombing made that crystal clear. Prior to the Marathon bombing there had been many unsuccessful terrorist plots—ranging from efforts to bring down airliners to bomb plots in several US cities.”

Neugebauer said he believes the TRIA Reform Act of 2014 will lead to a stronger private market, preventing U.S. taxpayers from making ongoing payments to support another federal program. The House banking committee will vote on the bill on June 18.

Industry Comments on CMS SMART Act Implementation

On September 19, the Centers for Medicare and Medicaid Services (CMS) issued an interim final rule (IFR) addressing implementation of the SMART Act (otherwise known as the Strengthening Medicare and Repaying Taxpayers Act) , and specifically Section 201 of the Act, which requires CMS to develop a final conditional payment process that would take 120 days from beginning to end. The IFR issued by CMS would significantly extend this process beyond the 120-day deadline, and likely undermine the SMART Act’s intended improvements of the Medicare Secondary Payer (MSP) process. Several industry groups took the opportunity to express their disappointment in CMS’s efforts.

The Risk and Insurance Management Society (RIMS) called on CMS to rescind the IFR and reissue a proposed rule:

“While we commend the Centers for Medicare and Medicaid Services for initiating the SMART Act implementation process, we are disappointed that it chose to issue an IFR rather than promulgating a rule through the regular notice and comment process. We have serious concerns that CMS failed to comply with statutory requirements to implement a final conditional payment process by October 2013, and that the process it has chosen to implement in the interim rule allows for over twice the statutory 120-day period to obtain a final payment amount. We urge CMS to rescind its IFR and to re-issue a new proposed rule through the regular comment process.”

An American Insurance Association (AIA) task force also found the IFR severely lacking:

“AIA’s Task Force does not support the method, manner and time frames contained within the IFC for obtaining final conditional payment amounts via a web portal. The main purposes of the SMART Act are to allow the parties to resolve claims in a timely manner, with finality, to streamline compliance and make it more practical, while ensuring that CMS receives reimbursement for conditional payments quickly. The IFC as written undermines these goals, imposes impediments to prompt claim resolution, allows CMS to delay providing necessary information to beneficiaries and insurers and will not accomplish these goals. The IFC states it specifies the process and timeline for expanding CMS’ existing MSP web portal to conform to the SMART Act. Unfortunately, the provisions of the IFC do not comport with the SMART Act and in many instances go well beyond the purposes and provisions of the terms of the Act.”

The Medicare Advocacy and Recovery Coalition (MARC), a group created in 2008 by various stakeholders and beneficiaries to advocate for the improvement of the Medicare secondary payer system, stated that the IFR is in clear violation of Section 201:

“The IFR is in direct violation of Section 201, which explicitly required CMS to develop a portal process that, from beginning to end, took 120 days. The statutory language could not be more clear: ‘In the case of a payment made by the Secretary pursuant to clause (i) for items and services provided to the claimant, the claimant or applicable plan (as defined in paragraph (8)(F)) may at any time beginning 120 days before the reasonably expected date of a settlement, judgment, award, or other payment, notify the Secretary that a payment is reasonably expected and the expected date of such payment.’ The language of Section 201 is unambiguous; the entire process – from beginning to end – is to take 120 days, which is triggered by the notice, and which includes the 65 day response period within the 120 day period in which the Secretary is to provide the final number.”

An interim final rule differs from typical proposed rules and regulations in that it is in effect even as the public is still commenting on the proposal. The comment deadline for this IFR was November 19. It remains to be seen what, if any, changes CMS will make in response to the comments.