The first week of the new Republican-controlled Congress reminds us of some perennial Washington truths.
For one, “Nothing is so permanent as a temporary government program,” as Milton Friedman wisely said. Also, whenever you hear of “bipartisan consensus” and “broad-based industry support,” you should reach for your wallet.
Republicans promised this week, as one of the first actions of the new Congress, to extend the Terrorism Risk Insurance Act, a taxpayer backstop for insurance companies.
The Sept. 11, 2001, terrorist attacks roiled insurance markets. Insurers began excluding terrorist acts from coverage. In the NFL, the New York Giants and Miami Dolphins said they couldn’t get liability coverage for their stadiums. Amtrak had to go without terrorism insurance.
So Congress in 2002 passed the Terrorism Risk Insurance Act, or TRIA. The law provides a taxpayer backstop to insurance companies that cover terrorism risk. This obviously was good news for insurance companies — who wouldn’t want a federal bailout written into law?
Other winners were the insured: professional sports teams, stadium owners, Amtrak, large property owners such as Disney World, and hotel chains such as Marriott. The benefiting industries said this was just a temporary patch until insurance markets adjusted. The American Insurance Association called TRIA “a temporary reinsurance bridge.”
The GAO in 2004 described the taxpayer insurance as a way to “give the insurance industry time to develop mechanisms to provide such insurance after the act expires on December 31, 2005.”
As early as 2003, though, the AIA was lobbying on TRIA again, according to the group’s lobbying disclosures. By 2004, the House Financial Services Committee had already passed a two-year renewal, albeit with an increase to the risk insurers had to bear themselves.
When Democrats took over Congress in 2007, they weren’t so worried about keeping TRIA temporary or limiting taxpayer exposure. Democratic Congresswoman Debbie Wasserman Schultz pushed provisions to ban the pricing of terrorism risk in some cases, arguing that if insurance policies reflected risk, “then the terrorists win.” Democrats renewed TRIA for seven years in 2007, with President George W. Bush’s signature.
This year, K Street pushed hard for another long-term extension. NFL teams and major energy companies including Exelon and Duke all lobbied on TRIA. Disney deployed lobbyists including former Harry Reid adviser Mike Castellano, to lobby on renewal. Trade groups such as the U.S. Chamber of Commerce, the National Association of Realtors and the U.S. Travel Association helped lead the crusade.
House Financial Services Chairman Jeb Hensarling — a Texas Republican who has clashed with K Street in other subsidy fights — proposed a five-year extension with some reforms and a cut in the subsidy. Senate Democrats, led by New York’s Chuck Schumer, wanted a long-term extension with minimal reforms.
As 2014 wore on, industry began to worry that TRIA might actually sunset — nine years after it was supposed to — and various lobbies began spreading scare stories. Bloomberg News even warned that the Super Bowl might be canceled if Congress didn’t act.
The House cut a deal with Schumer and passed a six-year TRIA bill, increasing insurers’ exposure and reducing taxpayers’ exposure. Reid wanted to pass it, too, but retiring Sen. Tom Coburn objected. The bill died. Americans rang in the New Year with no federal backstop to terrorism insurance.
But on Monday, Hensarling and the GOP House leadership promised to make TRIA renewal the second bill they would take up in the new Congress. Kirsten Mork, deputy chief of staff for the House Financial Services Committee, sent around an email Monday afternoon asking industry groups to publicly support the bill. Senate Republican aides say they plan to pass the bill soon.
A subsidy program for MetLife, Exelon and Disney is an inauspicious beginning for a majority that pledges belief in free markets and a party plagued by the accusation that they do the bidding of big business.
TRIA is bipartisan because it’s both pro-government and pro-business — not because it’s needed. Absent TRIA, private reinsurers would provide terrorism reinsurance. Insurers would have to pay more, and their customers would see costs go up. Credit rating firm Fitch noted recently that “commercial property insurers have gradually enhanced their ability to measure and model exposure to terrorism events.”
Standard & Poor’s suggested that, absent TRIA, “well-capitalized insurance companies, compelled by market demand and a desire to deploy excess capital, may begin providing terrorism coverage for higher premiums. Also, stand-alone terrorism coverage providers are likely to provide additional capacity for the right price.”
In other words, the private sector can do what TRIA does — but then the industries involved would have to pay for it directly. This is where the insurers and their customers object. Now Republicans have shown they’re almost as unwilling as Democrats to let these titans suffer the harsh winds of the free market.
Republicans assure me the early vote on TRIA doesn’t reflect the party’s priorities — it’s a mere matter of taking care of unfinished business. Coming weeks will tell whether TRIA's quick passage is really just the GOP tying up Reid’s and Schumer’s loose ends, or if we have yet another Congress that is more pro-business than pro-market.Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at firstname.lastname@example.org. His column appears Sunday and Wednesday on washingtonexaminer.com.