TRIA Failure Could Mega-Boost Prices

By Mark E. Ruquet

NU Online News Service, April 20, 2:42 p.m. EDT, Philadelphia?Insurance professionals told risk managers here that extension of the Terrorism Risk Insurance Act is less than assured and its worth may not be appreciated until after a terrorist event.[@@]

In a panel discussion today during the Risk and Insurance Management Society Inc.'s 2005 conference, speakers said the renewal issue will probably not see a resolution until close to the end of the year?TRIA is due to sunset on Dec. 31?but the issue is gaining notice in Washington, D.C.

One participant suggested that if TRIA expires there will be a huge price jump in prices.Gary Marchitello, managing director of national property syndication with Aon Risk Services, said without TRIA policyholders could eventually see increases of 200-to-300 percent in terrorism coverage.

James Maden, assistant vice president of property insurance for Lexington Insurance Company, a subsidiary of American International Group told the meeting that there are some positive signs, "We do not know what Congress will do, but there is more traction on the issue now."

He said the issue is gaining attention among lawmakers because they are seeing broader interest in the reauthorization from more than just the insurance industry. He said members of the lending and real estate communities are beginning to speak up.

"If it was just the insurance industry it would not get done," he said, adding, "Ultimately something will get done."

Wendy Peters, senior vice president for terrorism practice group, global markets, North American, for Willis brokerage of Radnor, Pa., warned against a "myopic view" within the insurance industry that Congress understands the importance of TRIA.

She said there are members of Congress who do not see the issue as very important and others who know nothing about it. Those within the industry, she stressed, must not assume federal representatives share their awareness of the issue.

David E. Wood, an attorney for Wood/Bender, LLP., in San Buenaventura, Calif., who moderated the panel, noted that a lot can happen between now and the end of the year. Events, he said, could overtake the importance of TRIA "and slide the issue to the backburner."

Finding a mechanism that would provide backstop coverage in the event of another foreign terrorist attack on the U.S. is a national problem, noted Karl J. Zimmel, director risk management for Alberto-Culver Company in Melrose, Ill.

Mr. Zimmel said the lessons of asbestos litigation should have taught the nation that it is difficult to place the entire burden on the insurance community without some federal support.

Should TRIA not be extended, he expected it would not have a significant impact on the coverage initially, but "if there is an event, all bets are off."

Mr. Maden said there is not enough capacity in the stand-alone market to provide terrorism coverage, and insurers "know we need help." He added that TRIA renewal may need to mandate discussions between insurers to develop more private market answers, something the current version fails to do.

Ms. Peters said there is a system that can be found that will work, but ultimately, any solution will need federal involvement against catastrophic loss.

"There are ways to do it, but the government does have a role," she said.

Yesterday, Chicago-based Aon released a report on the status of U.S. property terrorism coverage. In 2004, Aon said, less than 44 percent of Aon's clients declined to purchase terrorism coverage while 56 percent purchased some form.

The brokerage also unveiled its Terrorism Risk Map for 2005. The map evaluates terrorism exposure risk throughout the world for clients who are considering making investments in different countries.

Aaron F. Davis, vice president of Aon Risk Services, property syndication, said there is a 50-50 chance TRIA will be reauthorized. He said there should be greater certainty on which direction Congress will go in after the U.S. Treasury Department releases its marketplace study at the end of June.

The report is causing some concern, executives at both meetings noted, because some high-ranking Treasury Department officials have expressed opposition to reauthorization.

Mr. Davis echoed the comments of today's panelists that the private market is not capable of handling the risk and some form of government backstop plan needs to be in place.

"It is inevitable that there needs to be some government backing or guarantee," noted Paul Bassett, executive director of crisis management for Aon Limited. He added that Aon is lobbying hard for reauthorization.

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TRIA Failure Could Mega-Boost Prices

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