Extend TRIA Or Face

Huge Risks, Industry Warns

Backstop needed to maintain stability of insurancemarket and economy

Washington

A united insurance industry urged Congress last week to extendthe Terrorism Risk Insurance Act for two more years to maintain thestability of the insurance marketplace as well as the nation'soverall economy.

John J. Degnan, vice chairman of Warren, N.J.-based Chubb, toldthe Senate Banking Committee that terrorism, like war, is asocietal risk and is uninsurable. “To ask the insurance industry toabsorb losses resulting from an attack against our nation placesthe U.S. economy and our national security at great risk,” Mr.Degnan said in prepared testimony representing virtually everymajor insurance company and agent trade group.

“Without a risk-spreading mechanism, the right attack could verywell bring the insurance industry to its knees and significantlydestabilize our economic infrastructure, achieving a primary aim ofthe terrorist,” he said. “We simply cannot afford to let TRIAexpire and leave this important matter to chance.”

To date, he said, terrorism risk cannot be modeled or predictedwith any accuracy. Past terrorist attacks, Mr. Degnan noted, arenot predictive of future events, and the full range of possiblescenarios can never truly be known.

Terrorism risk defies normal underwriting and rating principles,effectively limiting the ability of insurers to advance a privatemechanism for that risk, he said. Congress must therefore act nowto extend TRIA, according to Mr. Degnan, to avoid destabilizing themarket.

Time is running short, he warned. Although TRIA does not expireuntil Dec. 31, 2005, the policies that rely on TRIA are writtenevery day usually for a 12-month term, which means that someinsurance will be written before TRIA's expiration but extendbeyond it, he explained.

Insurers, he added, will have no choice but to evaluate everypolicyholder considered for coverage during this period as if thebackstop will not exist for at least part of the coverageperiod.

Delaware Insurance Commissioner Donna Lee Williams also urgedCongress to extend TRIA this year. “Because some terrorism risksare largely uninsurable without a financial backstop, stateregulators are very concerned that significant market disruptionswill develop before TRIA's expiration,” Ms. Williams said on behalfof the Kansas City, Mo.-based National Association of InsuranceCommissioners.

By changing the expiration date to Dec. 31, 2007, she said,Congress would have about 15 months to digest and debate theTreasury Department report on the effectiveness of TRIA, which isdue on June 30, 2005.

From a reinsurance standpoint, Jacques E. Dubois, chairman ofSwiss Re America, said that for the most part his company does notprovide terrorism reinsurance because it cannot quantify thefrequency or severity of possible events. A two-year extension, headded, will provide protection to insurers and reinsurers whileallowing additional time to assess terrorism risk.

He warned, however, that it might never be possible to capture,in a model, the intentions of human minds that strive to inflictmaximum devastation and suffering.

But J. Robert Hunter, director of insurance for theWashington-based Consumer Federation of America, said TRIA is notnecessary and should be allowed to expire. The insurance industry,he said, is more than ready to stand on its own two feet.

“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.

United We Stand

John J. Degnan, vice chairman of Chubb, testified before theSenate Banking Committee on behalf of a wide range of industryassociations.

On the company side, the associations include the:

o American Insurance Association

Financial Services Roundtable

National Association of Mutual Insurance Companies

Property Casualty Insurers Association of America

Reinsurance Association of America

Surety Association of America

UWC Strategic Services on Unemployment and Workers'Compensation

On the agent side, the associations included the:

Council of Insurance Agents and Brokers

Independent Insurance Agents and Brokers of America

National Association of Professional Insurance Agents

Reproduced from National Underwriter Edition, May 21, 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.