New GAO Report A Boost For TRIA, Says AIA

By Arthur D. Postal, Washington Bureau Chief

NU Online News Service, March 31, 4:22 p.m. EST?A government report that finds the insurance marketplace would be disrupted by a catastrophe loss exceeding $20 billion will aid efforts to gain extension of the Terrorism Risk Insurance Act, an insurers' group representative said.[@@]

The findings should "be a great help as we and policymakers continue the hard work of finding a long-term public/private partnership to deal with the uninsurable risk of catastrophic terrorism," said Dennis Kelly, a staff official at the American Insurance Association (AIA) in Washington.

His comments followed yesterday's release of the Government Accountability Office findings that a terrorist attack or natural catastrophe exceeding last year's hurricanes in Florida could severely disrupt insurance markets and impose substantial recovery costs on governments, businesses and individuals.

The report, "Catastrophe Risk: U.S. and European Approaches to Insure Natural Catastrophe and Terrorism Risks," in the opinion of the AIA supports the need for some type of public/private partnership in creating systems to deal with catastrophe risks.

According to the GAO, the threshold for such a concern is an event, like a natural catastrophe or a terrorism attack, which surpasses more than $20 billion in damages.

Estimates of last year's insured hurricane loss in the Southeast have ranged from $10.3 to $21.6 billion.

The report, submitted to the House Financial Services Committee, comes as insurers are conducting an intense lobbying effort to have Congress extend the Terrorism Risk Insurance Act for at least two years.

GAO said such a huge catastrophe event could have grave economic consequences even though insurers and state governments have taken steps to enhance the industry's capacity to address natural catastrophe risk.

The report noted that insurers have increased their equity capital steadily from 1990 to 2003. "However, this measure has several limitations," the report said.

For example, the report said, insurers may also face significant financial exposure in risk-prone areas, which could partially offset the increase in equity capital. In addition, the report said, "insurers' equity capital may be required for other types of claims besides claims involving catastrophe risk."

Mr. Kelly at the AIA said the group was "pleased another report has come out on the very important issue of catastrophic terrorism risks." He said that in the report the GAO "took a very unbiased look at alternatives that are already under discussion by policymakers, and the more information policymakers have, the better."

Mr. Kelly also noted report findings concerning the methods used by six European nations to deal with the potential for catastrophic losses.

The report found that in these countries, the GAO found a "mix of government and private-sector approaches to providing natural catastrophe programs," and that most of the countries also have national terrorist insurance programs.

The GAO examination of real-world responses to catastrophic risks that other nations have undertaken "should be very instructive to U.S. policymakers," Mr. Kelly said. "The GAO performed a valuable service by cataloging these overseas programs in one place."

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New GAO Report A Boost For TRIA, Says AIA

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