Robert Hartwig, president and economist with the Insurance Information Institute, advocated for further extension of the Terrorism Risk Insurance Act (TRIA) on behalf of the P&C industry at a hearing conducted by the Committee on Financial Services on Tuesday, September 11, entitled “TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program.”
The hearing was an opportunity for Congress to assess TRIA and the private sector’s readiness to step in and handle the risk without the government providing reinsurance when an act of terrorism is declared.
TRIA was a federal law enacted under President George W. Bush in 2002, intended as a stopgap until the insurance industry created a way to effectively insure against acts of terrorism—Hartwig and industry representatives are now skeptical that the industry can provide this.
Despite the fact that “reports of property owners having problems securing terrorism coverage due to a lack of capacity in the market are no longer making headline news… terrorism risk today is almost every bit as uninsurable as it was a decade ago.” Industry stability is attributable to two factors, according to Hartwig: the lack of terrorist attacks on U.S. soil since 2011 and TRIA remaining in place.
Originally set to expire in 2005, the Act has been reauthorized twice; the current expiration date stands at December 31, 2014.
When the original expiration for the Act came into sight in 2004, terrorism exclusions reappeared on policies extending into 2006 and beyond; Hartwig anticipates a similar reaction soon, going on to cite Aon’s estimates that “at least 80 percent of the commercial property market will be impacted by these exclusions and other restrictions.”
The terrorist attacks that took place on Sept. 11, 2001 “produced insured losses larger than any natural or man-made event in history,” according to Hartwig, inducing claims totaling around $32.5 billion. The pricing and underwriting reactions to such an unprecedented event—and the unpredictability of future terrorist attacks—were felt across the financial services sector and the economy at large, Hartwig went on to explain.
In late August, the Risk & Insurance Management Society submitted a letter to FIO Director Michael McRaith advocating for further extensions.
The Hartford’s SVP and Insurance CRO Christopher Lewis, who was present at this hearing, has also spoken our in the last two months in support of reauthorization, saying on July 24: "Terrorism poses unique challenges for our society and its economy, and protection from this inherently public risk cannot be shouldered by the private sector alone. Insurance companies have no data with which to analyze where, when and how the next terrorist attack might take place. At the same time, government experts continue to warn us that the threat of terrorism is real and growing."
Others present at yesterday’s hearing were David John, Senior Research Fellow, The Heritage Foundation; Rolf Lundberg, SVP, Congressional and Public Affairs, U.S. Chamber of Commerce, on behalf of the Coalition to Insure Against Terrorism; Erwann Michel-Kerjan, Professor and Managing Director, Risk Management and Decision Processes Center, Wharton School of Business, University of Pennsylvania; Janice Ochenkowski, Managing Director, Jones Lang LaSalle, on behalf of the Risk and Insurance Management Society, Inc; Linda St. Peter, Operations Manager, Prudential Connecticut Realty, on behalf of the National Association of Realtors.
On another panel sat Steve Bartlett, President and CEO, The Financial Services Roundtable; Darwin Copeman, President and CEO, Jewelers Mutual Insurance Company, on behalf of the National Association of Mutual Insurance Companies; Jon Jensen, President, Correll Insurance Group, on behalf of the Independent Insurance Agents & Brokers of America; Michael Lanza, EVP and General Counsel, Selective Insurance Group, Inc., on behalf of the Property Casualty Insurers Association of America; and Edward B. Ryan, Senior Managing Director Aon Benfield, Aon plc, on behalf of the Reinsurance Association of America