As previously reported, the Committee is expected to vote on TRIA before July 4 and House leadership would like to hold the floor vote before the August recess.
The HFSC bill will reduce the government’s liability and, following the GAO's recommendation for Treasury to gather more data on TRIA, mandates that Treasury study the possibility of creating a reserve fund and create an advisory committee to encourage expansion of a private terrorism insurance market, as well as mandating other data gathering initiatives.
Among the HFSC provisions:
- Renews program for 5 years;
- Insurers are responsible for the first 20% of all damages under the program;
- Bifurcates NCBR and conventional acts;
- Phases-in the industry deductible increase for conventional act from the current 15% to 20% in 2019 (1%/year). NCBR would remain at 15%;
- Beginning on January 1, 2015, requires the Treasury Secretary, when deciding whether to certify an “act of terrorism,” to consult with the Secretary of Homeland Security and the Attorney General of the United States;
- Requires the Treasury Department to: a) within 15 days issue a preliminary certification notice to indicate if an act is expected to be certified and b) make a decision to certify in 90 days;
- If the Secretary does not certify an act in 90 days, then it is considered to not be an act of terrorism;
- Removes the $5 million threshold for certifying acts of terror;
- Beginning on January 1, 2016 the recoupment amount increases from the current 133% to 150%;
- Allows small insurers to opt-out. The current program does not allow property/casualty insurers to opt-out of terrorism coverage. The increase to $500 Million trigger would be difficult for small insurers to meet. Also mandates study, see below for details.
- For purposes of determining if industry losses have exceeded the trigger, the Treasury Secretary shall not include acts resulting in $50 million or less in insured losses.
The HFSC Bill includes several provisions related to data gathering of the program:
- Reporting of Terrorism Insurance Data: Beginning on January 1, 2016, the Treasury Secretary shall collect the following information: (1) lines of insurance with exposure to terrorism; (2) premiums earned on terrorism risk coverage; (3) the geographical location of risk exposure; (4) the pricing of terrorism risk insurance; (5) the take-up rate of terrorism risk insurance; (6) the amount of private reinsurance for acts of terrorism purchased; and (7) such other data as the Secretary deems appropriate. Requires the Secretary to collect the data in a manner that does not reveal proprietary information of the participating insurers, and to provide the House and Senate Committees of jurisdiction an analysis of such data on an annual basis.
- Requires the Treasury Secretary to conduct an annual study of small insurers participating in the TRIA program to identify any competitive challenges they may face in the terrorism risk insurance marketplace.
- CBO and OMB Studies Regarding Budgeting for Costs of Federal Insurance Programs: Requires the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to each conduct a study on the application of accrual accounting concepts to budgeting for the costs of TRIA and other federal insurance programs, and report their findings to the House and Senate Committees of jurisdiction.
- GAO Study on Upfront Premiums and Capital Reserve Fund: Requires the Government Accountability Office (GAO) to study the viability of the Federal government assessing and collecting upfront premiums from insurers for terrorism reinsurance coverage or requiring insurers to create capital reserve funds for terrorism-related risks. This study would also provide a comparative analysis of the types of systems implemented in other countries that collect or assess premiums or create capital reserve funds.
Other Provision of note:
- Requires insurers to issue disclosure notices to policyholders only at the time of offer and renewal of the policy rather than at the time of offer, purchase, and renewal, as required under current law.
- Clarifies definition of “control” for certain reciprocal insurers where the establishment of an attorney-in-fact relationship could currently be misinterpreted by Treasury and result in misallocated deductible, liability cap, recoupment, and liability.
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