Consumer Federation: Let TRIA Program Die

Washington

Congress should allow the Terrorism Risk Insurance Act toexpire, the Consumer Federation of America said.

In a new study, the Washington-based CFA said that the privateinsurance industry is capable of paying terrorism-related claims onits own.

“Our study clearly documents that the insurance industry is morethan ready to stand on its own two feet and that taxpayer back-upshould end,” said J. Robert Hunter, CFA's director ofinsurance.

“The ability of the industry to insure against terrorism isenormous and growing, profits are quite substantial, and thefinancial condition of insurers overall is rock solid,” hesaid.

Industry representatives criticized CFA's analysis, arguing thatit understates the risk and the need for a federal backstop forterrorism-related losses.

CFA said that only nine communities in the nation are at eithera high or moderate risk of being the target of a terrorist attack.Those at high risk are New York City, San Francisco County, theDistrict of Columbia and Cook County, Ill., which includesChicago.

The communities at moderate risk, according to CFA, are SuffolkCounty, Mass., which includes Boston; King County, Washington,which includes Seattle; Los Angeles County; Harris County, Texas,which includes Houston; and Philadelphia County.

CFA said that if Congress does decide to continue the TRIAprogram, it should consider a plan that focuses on thesecommunities.

In addition, CFA said, the industrywide deductible for terrorismcoverage should increase to a pretax figure of $77 billion for thefirst year of the program, and should then increase by another $10billion per year.

CFA also said that the share of losses that insurers must payabove the deductible should increase from 10 percent to 15percent.

Insurance companies should pay actuarially sound premiums forterrorism reinsurance provided by the government, if not a littlehigher, CFA added. Charging rates that are slightly higher, CFAsaid, will encourage private market mechanisms to compete byoffering lower rates.

Industry representatives challenged CFA's assertions. Gary Karr,a representative of the Washington-based American InsuranceAssociation, noted that Tom Ridge, the director of homelandsecurity, recently said that the United States will be a “targetrich environment” for terrorists this summer.

That is hard to square with Mr. Hunter's suggestion that therisk is not that severe.

“Mr. Hunter is surprisingly dismissive of the risks we face,”Mr. Karr said.

David Winston, senior vice president of federal affairs for theIndianapolis-based National Association of Mutual InsuranceCompanies, said that terrorism is a fundamentally uninsurable riskthat requires a federal backstop.

There is no claims experience other than the Sept. 11, 2001terrorist attacks, Mr. Winston said. And the best informationrelating to underwriting a policy is in the sole possession of theU.S. government and is and should be classified.

He said that TRIA should be extended and that its shortfallsshould be remedied.

Joe Annotti, a representative of the Des Plaines, Ill.-basedProperty Casualty Insurers Association of America, criticized thesuggestion that there is a taxpayer subsidy in TRIA.

Insurance companies, Mr. Annotti said, have significant exposureunder TRIA and any government funds used to pay claims must berepaid by companies.

“There is a big difference between a bailout and a backstop,” hesaid.

The House Financial Services Committee is expected to conduct ahearing on TRIA extension soon, possibly before the Memorial Dayrecess.

Reproduced from National Underwriter Edition, April 23, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.