Insurers say private market not ready to assume terrorism risk

U.S. insurers had their day before a Senate committee investigating the status of the Terrorism Risk Insurance Act (TRIA), urging lawmakers to extend the program beyond its December 31 sunset. Insurers insist the government backstop for terrorism risks must be renewed because the private market is not yet prepared to handle the potentially unlimited exposure such risks entail.
Ernie Csiszar, president of the Property Casualty Insurers Association of America (PCI) testified before the Senate Banking Committee that insurers want to work towards a long-term solution for insuring terrorism risk. "Our members believe in the power of free markets and support competition-driven solutions to public policy problems," he says. "But there are some instances terrorism insurance being one where only a public/private partnership can marshal the resources to effectively protect individual consumers and our nation’s economic security."
He adds that insurers cannot assume a risk that cannot be accurately quantified and for which adequate financial capacity may not be present. He points to risk models which indicate a US$100 billion loss as a result of terrorism is "not far-fetched".
Among the long-term solutions Csiszar says may be considered are allowing insurers greater flexibility to negotiate terms and conditions of terrorism coverage (i.e. to reduce current state regulations which control the nature and price of coverage such as requiring workers’ compensation risks to be included); a mechanism to reduce individual insurers’ exposure to losses; access to capital markets to generate additional capacity; or the implementation of "tax exempt catastrophe reserves" which are used in other countries.
The National Association of Mutual Insurance Companies (NAMIC) also presented a statement to the Senate committee, noting specifically the impact the September 11, 2001 terrorist attacks had on workers’ compensation insurers. NAMIC member representative John T. Leonard writes that another terrorist attack could casue insolvencies amongst these companies without government reinsurance in place.
David Winston, senior vice president of federal affairs for NAMIC says the need to extend TRIA is urgent. He says contracts being negotiated even at this time could be impacted by the lack of a federal terrorism backstop when TRIA’s sunset takes effect on December 31 of this year.