Posted on 11 Apr 2013 by Neilson
The Terrorism Risk Insurance Act (TRIA), a national security safety net to protect economic activity before and after a terrorist attack, is set to expire at year-end 2014. While reauthorization is likely to receive strong support in Congress, success may come late in the process, predicted Robert Gordon, senior vice president, Policy Development and Research, for the Property Casualty Insurers Association of America (PCI) during the National Association of Insurance Commissioners' (NAIC) Spring National Meeting in Houston today.
Insurance for Acts of Terrorism was the topic for the NAIC's Center for Insurance Policy and Research (CIPR) brunch event which featured speakers providing perspectives on the insurability of the risk of terrorism, the current and prospective private market for terrorism coverage, details on how the Terrorism Risk Insurance Program works and the importance of getting TRIA renewed on a timely basis. TRIA only applies with respect to attacks designed to coerce U.S. civilians or influence the policy or conduct of the United States, essentially protecting against a failure of U.S. terrorism interdiction.
"The TRIA program has worked exceptionally well for the last decade," said Gordon. "It has cost the taxpayers essentially nothing and consumers have generally been able to purchase available and affordable terrorism insurance coverage. In 2002, 2005 and 2007, Congress hoped that the threat of terrorism would diminish and private mechanisms for terrorism protection could return to normal. While national security efforts have increased, terrorism remains a real and continuing threat. Terrorism is not an insurable risk. Neither insurers nor reinsurers can predict either the likelihood or severity of the next terrorist event. As a result, the need to protect against the economic effects of terrorism must be a shared responsibility between government and insurers."
"We cannot over emphasize that TRIA's primary beneficiaries are insurance consumers," Gordon added. "PCI's consumer research indicates that the vast majority of Americans recognize that terrorism is a national security issue of concern to all citizens and policyholder support for TRIA is broad, deep, and essentially unanimous."
"Congressional staff members will seek hard data supporting our TRIA arguments," said Gordon. "Fortunately, we have the facts as well as the theory on our side. A 2004 study by economist Glenn Hubbard found that without TRIA, significantly less private capital was available for terrorism coverage and as a result commercial policyholders would face steep price increases or in some cases would be wholly unable to obtain terrorism coverage. This would slow US economic recovery and job growth, which in 2004 would have caused a GDP loss of .4 percent, household net worth declines of .9 percent and .2 percent fewer jobs created - significant economic losses relative to a program that has cost taxpayers nearly nothing in over a decade."
"Ultimately, Congress digs deeper into TRIA, they will appreciate that TRIA hasn't cost taxpayers a penny in loss costs," said Gordon. "TRIA requires the private sector to keep significant skin in the game - before and after an event -- the federal backstop is only triggered in a truly catastrophic loss. TRIA is one of the better designed private-sector focused taxpayer-protection programs."
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $190 billion in annual premium, 40 percent of the nation's property casualty insurance. Member companies write 46 percent of the U.S. automobile insurance market, 32 percent of the homeowners market, 38 percent of the commercial property and liability market, and 41 percent of the private workers compensation market.