Homeland Security Watch

News and analysis of critical issues in homeland security

December 6, 2007

Terrorism Insurance Bill Proceeds Without Certainty

Filed under: Congress and HLS,Risk Assessment — by Jonah Czerwinski on December 6, 2007

A seven-year extension of the Terrorism Risk Insurance Act, or TRIA is closer to passage in the Congress this week. This will be the result of a compromise between Dems and Repubs, and between the House and the Senate. In general, Dems favor the legislation to enable private insurers to write policies that cover acts of terrorism, which they believe insurers otherwise would not provide out of concern that such a policy would be too risky. Repubs are, in general, unsupportive of extensions for the bill in favor of private sector market solutions that they believe would be less expensive.

The insurance industry paid more than $30 billion in claims as a result of the 9/11 terrorist attacks.  Afterward, commercial terrorism insurance for businesses became expensive and even impossible to obtain. Congress responded by passing TRIA to provide a financial backstop for the insurance industry so that it would continue to underwrite policies. TRIA is set to expire on December 31.

House Financial Services Chairman Barney Frank is leading the House charge to bolster TRIA. The Senate is seeking ways to continue TRIA in more modest ways. The White House supports the Senate’s more conservative version of the TRIA bill.

CQ wrote today that Chairman Frank will accept the Senate’s seven-year extension of TRIA, which is shorter than the 15-year extension he sought. The seven-year TRIA extension would increase the deficit by $3 billion over the next five years and $5.1 billion over the next decade, according to CBO estimates. Chairman Frank said he also would step back from requiring an expansion of the program to cover nuclear, biological, chemical, and radiological attacks. On the other hand, Frank is committed to reducing the $100 million threshold that would trigger government coverage to $50 million.

The last thing we should want to do is to leave America’s economy hanging without viable insurance coverage that can protect it against losses like those we saw in lower Manhattan on 9/11. However, there comes a time when industry will have to step up to identify the market – or create one – for providing the coverage necessary for confidence in today’s risk-laden environment. TRIA was created as a temporary fix to bridge the tenuous time between 9/11 and a more stable economic landscape that would allow the market to operate effectively in this new terrain. However, the question remains: What if the market sets a price so high for this coverage that demand never takes hold? We run the risk of creating an additional vulnerability in the form of a brittle economy that would likely suffer unnecessary cascading effects from a terrorist attack if the insurance coverage is not in place to buffer the financial impact.

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Comment by William R. Cumming

December 12, 2007 @ 12:44 pm

It would be interesting to see State Insurance Commissioners strive to have a “Physical Damage” policy issued that does not rely on specific types of causation thereby putting thousands of trial lawyers out of business that spend their time and insurance company legal time on game-playing in the courts. This simple step might even become a basic to tort reform. Another simple reform might be to eliminate all jurisdiction of the federal courts over insurance issues. The totality of impact on the insurance industry of 9/11 is still not well documented but it is clear that financially they did not suffer as much as was anticipated at the time.

Comment by William R. Cumming

January 6, 2008 @ 9:26 pm

H.R. 2761/P.L. 110-160

Terrorism Risk Insurance Program Reauthorization Act of 2007 (Dec. 26, 2007; 121 Stat. 1839; 5 pages)

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