The Capitol

WASHINGTON, DC—Discontent is brewing over a draft version of a plan introduced by two Congressmen several days ago that would be an alternative to another proposal to extend the federal backstop for terrorism property insurance.

House Financial Services Chairman Jeb Hensarling, R-Texas and Rep. Randy Neugebauer, R-Texas, circulated the proposal to Republican committee members several days ago behind closed doors, according to the New York Daily News.

The proposal, called The Terrorism Risk Insurance Modernization (TRIM) Act of 2014 would extend the federal backstop for three more years, without significant changes in 2015.

But, by 2017, it would raise the trigger for all non-nuclear, biological, radiological, and or chemical events, to $500 million from $100 million.

It would also decrease the federal share of insurers’ losses for non-NBCR covered events to a 75% copay by 2017.

Critics of the program say the proposal is too weak to provide the necessary support for the insurance or commercial real estate industry should another significant terrorism event occur. Last Thursday Rep. Carolyn Maloney, D-NY, issued a statement about TRIM, calling it “the equivalent of doing nothing at all.”

“Under this draft, terrorism risk insurance would be nearly unavailable and never affordable,” she said.

Maloney argued that the market won’t be able to bear raising the program trigger for conventional terrorist events from $100 million to $500 million, nor could it support other elements of the plan, which include establishing an “unnecessary reserve fund”, and increasing the recoupment of federal payments to 150%.

Other observers are taking the more diplomatic route of pointing out the strengths of the current approach. The Washington, DC-based Real Estate Roundtable, for example, explains that while the technical trigger for federal assistance under the program currently in place is is $100 million, no government funds are advanced until insured losses exceed $30 billion, and until significant insurer deductibles are met–20% of prior-year direct earned premiums for covered commercial lines. Even then, it noted, the government pays 85%, with mandatory recoupment from policyholders up to $27.5 billion and additional recoupment at the discretion of the US Treasury Secretary.

“We commend House Financial Services Committee Chairman Jeb Hensarling and Insurance Subcommittee Chairman Randy Neugebauer for recognizing the importance of maintaining a federal role in terrorism risk insurance markets with the introduction of the Terrorism Risk Insurance Modernization (TRIM) Act of 2014,” Roundtable CEO Jeff DeBoer, said in a statement about TRIM. “The TRIM Act helps to lay the foundation for developing an effective plan that will extend this vital program.”

The Real Estate Roundtable goes on to note about TRIM that “additional concerns have been raised that the proposed changes could have unintended and undesirable marketplace consequences-ranging from a meaningful reduction in private insurance capacity to a demonstrable increase in government exposure, to economic risk from terrorism-all at the potential cost of disrupting US enterprises that rely on terrorism insurance coverage in order to grow and create jobs.

Later this month the Senate will consider a far more palatable measure, from the industry’s perspective at least, which extends TRIA for seven years.

The measure would increase an insurers’ co-pay from 15 to 20%, with the government still covering 80% of each company’s additional losses and raise the mandatory recoupment threshold to $37.5 billion.