Hensarling seeks new-look terrorism insurance program before Dec. 31 expiration

Marine stands by wreckage of the World Trade Center. (Marine photo)

The upcoming lame duck session of Congress is quickly shaping up to be one of the most contentious in recent memory Capitol Hill conservatives calculate what victories they should lock down in the last days of the current session before Republican leaders renew their campaign against them.


Caught in the crossfire are programs conservatives have been working to reform and transition to the private sector.

Rep. Jeb Hensarling (R.-Texas), the chairman of the House Financial Services Committee, one of the conservatives leaders in stripping out and rebuilding programs has successfully push for changes in the Terrorism Risk Insurance Act program that expires Dec. 31.

The Texan is getting pressure from the House GOP leadership to accept a Senate bill that the congressman has dismissed as continuing the status quo and using financial gimmicks to give the appearance of reducing taxpayer exposure.

The Senate’s TRIA extension bill, S. 2244 passed that chamber July 17 93 to 4, with the support of the conservative triad of Sen. Randal H. “Rand” Paul (R-Ky.), Sen. R. Edward “Ted” Cruz (R.-Texas) and Sen. Michael S. Lee (R.-Utah).

The Senate bill contained significant reforms demanded by conservatives, such as raising co-pays from 15 percent to 20 percent and forces the Treasury Department to develop details criteria and increases the maximum the federal government can recoup from surcharges on new policies after a payout to 135.5 percent per year, up from 133 percent per year.

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee (Courtesy)
Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee (Courtesy)

When the Senate bill passed, the White House signaled that President Barack Obama would sign the legislation. But, Hensarling’s committee had already passed a tougher bill, H.R. 4871.


The Hensarling bill, which was really put together by Rep. R. Randolph “Randy” Neugebauer (R.-Texas), who said after the bill passed the committee June 19: “I applaud my colleagues on the committee for passing the TRIA Reform Act to finally begin the transition to a terrorism risk insurance market that is more accountable to American families and hardworking taxpayers.”

Clearly the intent of the Hensarling bill was to eventually get the federal government out of the terrorism insurance business as soon as possible, he said.

“I commend the committee for recognizing these needed reforms that modernize the Program without altering its fundamental functions,” he said. “Now is the time to take off the training wheels and lay the foundation for a more robust private market for terrorism risk.”

It did not surprise Capitol Hill that Hensarling put the brakes on working out a bill with the Senate, especially as it became clear that the Republicans would retake control of the chamber. This would put the Texas conservative in the room with fellow Republicans.

The problem is that with the winds of war swirling on the Senate side of the House that better deal could become collateral damage sending a shock through the economy as insurance against terrorism—the norm for 12 years—goes away New Year’s Eve.


The federal government’s support of terrorism insurance began in 2002, when it became obvious that construction projects and other business ventures could not move forward without protection against terrorism risk.

At its most basic level, insurance is very simple. One party takes on risk in exchange for a fixed payment. The party taking on the risk, the insurer, studies past events and makes a guess as to his possible exposure to come up with a payment, or premium, for that exposure.

The problem after the Sept. 11, 2001 attacks insurers were overwhelmed with the scale of damage to the World Trade Center towers and the Pentagon and the scale of the Al Qaeda network that they just left the marketplace altogether.

After Sept. 11, 2001, no one was really insuring against terrorism.

The situation was very similar to those that led to the federal riot insurance program Congress created in 1968 to cover damage from civil unrest or the War Damage Insurance Corporation, created by Franklin D. Roosevelt in 1941.

In 2002, 2005 and 2007, the anticipation was that terrorism would go away or the market would have figured out a way to price in Al Qaeda or ISIS or the lone wolves.

That has not happened yet. In fact, with the emergence of credible lone wolves, pricing risk is just a difficult as ever. If anything the April 15, 2013 Boston Marathon bombers brought the point home that even if the FBI was watching terrorists and meeting with them, they could still inflict horrific damage in an instant.


War and massive natural disasters are completely appropriate reasons for the government to intervene on behalf of the national interest.

It is an unfortunate reality that absent a federal boost to terrorist insurance billions of dollars with of projects will either stall or never get started. Owners of those buildings already in place will have to so traumatically restructure their capital and finances that it will affect coverage for bond payments and other covenants.

A March study “Expiration of Terrorism Risk Insurance Act Could Hurt National Security” by the Rand Corporation, authored by Henry H. Wills, Rand’s director of Homeland Security and Defense Center concluded a gap in terrorism insurance would actually hurt national security.

In a statement released with the study, Willis said: “Our study finds that if the act expires and the take-up rate for terrorism insurance falls, then our country would be less resilient to future terrorist attacks.”

Recovery and rebuilding will be more rapid and efficient if the take-up for terrorism insurance is high, he said. “The more-rapid recovery can reduce the consequences of subsequent attacks, thus contributing to national security.”

The Rand study focused on the actual problem of terrorism insurance, not the politics.

But, it is in the end a political problem. With a conservative reformer like Hensarling calling the shots, the new TRIA extension will provide coverage for what cannot be covered in the private sector and lead to a eventual transfer back to a purely private market through its annual steps to limit taxpayer exposure


All parties seem to agree on the need for TRIA renewal, so with the meter running, it makes it even more important that the perfect not become the enemy of the good

In an industry where contracts are written years out, a short-term extension or a even a temporary disruption in coverage would cause instability that could have cataclysmic consequences.

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