Terrorism Risk Insurance Plan Likely to Falter in the Senate

The federal program set in place 12 years ago to help insurance companies cover Americans in case of terrorist attacks is likely to expire this month, as a bill extending the program faces almost certain death in the Senate this week.

Sen. Tom Coburn is the main reason: The Oklahoma Republican vowed Thursday to prevent his colleagues from bringing the measure up for a vote, as one of his last acts in Congress before his retirement begins later this month.

"There may not be any TRIA until January, the next Congress. I'm OK with that," Coburn said. "Quite frankly, I don't care whether TRIA happens or not. Because I believe that markets will fill in that void."

After months of negotiations over the Terrorism Risk Insurance program, the talks between House Republicans and Senate Democrats, led by Rep. Jeb Hensarling and Sen. Chuck Schumer respectively, fell apart over the weekend. As a result, the House pulled TRIA out of the omnibus spending bill, a must-pass law that would have given cover to some of the program's more controversial addendums. But as a standalone bill with two unpopular riders, TRIA now has bipartisan opposition in the Senate, where passage appears to be extremely unlikely.

Here's the problem: In the aftermath of the Sept. 11, 2001 attacks, insurers had no idea how to cover individuals and businesses in the case of future terrorist strikes and many decided not to cover terrorism at all. Acts of terror are by their nature unpredictable both in their timing and the amount of damage, leaving insurance companies with little information on how to cover their clients. Without insurance, construction projects stalled and hurt real estate prices. So Congress stepped in with TRIA, providing a federal backstop for terrorism insurance, which allowed insurers to provide coverage at little cost to taxpayers.

TRIA opponents like Coburn argue that private insurers are now prepared to cover terrorist attacks on their own. In other words, if TRIA expires, the free market will fill in the void left by the federal program.

Even Coburn has allowed a TRIA reauthorization to move forward in the past. Earlier this year, the Senate passed a reauthorization with 93 members voting in favor. But this new authorization includes two provisions added by the House that has Coburn and even several Senate Democrats jumping ship.

Coburn has never been a fan of the insurance program, but he objects strongly to the addition of another rider to create a federal bureaucracy that would streamline licensing for insurance producers: the National Association of Registered Agents and Brokers Reform Act.

The previous Senate TRIA bill included that NARAB provision, but in order to get Coburn on board, the Senate version authorized NARAB for only two years, allowing Congress to debate the program again in 2016. The new House bill is a permanent authorization and would not allow states to opt out of the program. That, Coburn says, is the problem. "The insurance industry has sold it as, 'This is great for everyone.' OK, let's say that's true. So what's so wrong with giving them an opt-out if it's not great?" Coburn said. "If everybody agrees this is a perfect thing to do, why not enforce the 10th Amendment … that says that if a state doesn't want to do it, they can opt out?"

Coburn's objection alone could kill the bill. Under a mass of procedural requirements and with so much left on its plate for the final days of this session of Congress, it could take the Senate a week to deal with the TRIA bill as long as Coburn objects. And with several Democrats upset about the addition of a rider that undermines the Dodd-Frank Wall Street reform law, there's little appetite in the Senate to stick around through next week to deal with the issue.

"I have leverage now. If they want to pass it, put the opt-out in and let's go to town," Coburn said, adding that neither Republican or Democratic leadership has contacted him about the issue.

Democrats, meanwhile, are generally supportive of TRIA, but several are furious about the Dodd-Frank provision House Republicans added to the bill and could pull their support even if leaders find a way to pacify Coburn. The language would clarify or change a provision in the Dodd-Frank law to free nonfinancial companies, like those involved in agriculture or energy, from having to comply with the same collateral and other rules for swaps in the derivative markets that are applied to banks.

"It's shameful that Republicans in the House would hold this important post-9/11 program hostage in a misguided attempt to roll back financial reforms that protect our economy from the kinds of risk that emerged during the last financial crisis," Sen. Elizabeth Warren, a major advocate for Dodd-Frank, said in a statement.

Sen. Carl Levin of Michigan said Thursday that the Dodd-Frank rollback "raises all kinds of problems" for many Democrats. "My understanding is that it's not going anywhere here," Levin said.

Schumer, for his part, seems to have a singular message for House Republicans: I told you so. Had TRIA remained a part of the omnibus, some members' objections on NARAB and even potentially the Dodd-Frank measure would have had to take a backseat to the need to keep the government funded.

"By playing games and refusing to pass a clean extension of terrorism insurance, the House Republicans have put terrorism insurance at risk," Schumer said in a statement, calling on the House to pass the TRIA bill that earned 93 votes in the Senate earlier this year. That bill lacks the Dodd-Frank provision and has just a two-year NARAB authorization.

With the House scheduled to leave for the holidays Thursday, the Senate won't be able to negotiate a clean version of the TRIA bill with the lower chamber. Unless Coburn and Senate Democrats change their minds, the program will expire on New Year's Day, leaving the next Congress to deal with the fallout.

A House GOP aide familiar with the two-chamber negotiations on the reauthorization scoffed at the notion that a fallback plan would emerge in that chamber. He asked why House Republicans would back off, given the bill's overwhelming 417-7 bipartisan passage in the chamber on Wednesday.

As for the Dodd-Frank change, some Republicans are depicting it as a clarification that is "Main Street" friendly.

House Financial Services Chairman Hensarling's office on Thursday declined to provide a comment on the Senate developments.

But his office did point to a statement Hensarling made on the House floor on Wednesday questioning Senate Democratic positioning against reopening Dodd-Frank language. Hensarling noted the Senate had tinkered with the bill before. He also argued that the "clarification" in the bill of the bank regulatory language adds an opportunity to "not only to bring some stability and certainty to our insurance markets, our builders, but our farmers and ranchers and small businesses and hurting families at this holiday season."

Hensarling and other House Republicans had been repeatedly warned that inclusion of the language would cause problems in the Senate.

Both Rep. Maxine Waters, the top Democrat on the Financial Services Committee, and Democratic Rep. Carolyn Maloney of New York emphasized Tuesday before the House Rules Committee that Schumer was serious in his warnings that the addition of the end-user margin language would be "toxic" to Senate Democrats.

But Hensarling and other Republicans on the Rules Committee questioned why the two Democrats and others would argue against its inclusion in the terrorism-risk insurance bill, given its earlier passage this year in the chamber in a bipartisan vote.

Maloney conceded she had voted for the revamped regulatory language as a stand-alone provision. But she warned that inclusion of such an "extraneous" bill to TRIA that was never agreed on between Schumer and Hensarling would be "putting this entire package in jeopardy."

"Our side made several concessions to Mr. Hensarling in these negotiations. For example, we agreed to double the 'trigger' for when the federal backstop kicks in from $100 million to $200 million," Maloney said, noting that reauthorization of the program is "the number one priority for my district, which has been—and will continue to be—a terrorist target."

She added, "We also agreed to only a 6-year reauthorization, even though the Senate bill was a 7-year reauthorization.

"But we did not agree to add unrelated Dodd-Frank bills to TRIA. The reason we didn't add unrelated Dodd-Frank bills was that they make it very difficult to pass the Senate before TRIA expires," Maloney had said.

Rules Committee Democratic member Jim McGovern warned that inclusion of the language was prompting "a needless game of chicken on an important, critical matter."