“WELCOME back to the fight.” Die-hard “Casablanca” fans might remember this line from near the end of the movie. Resistance-organizer Victor Lazlo speaks it in acknowledgement that Rick, the formerly cynical, embittered caf?/casino owner–the man who once said, “I stick my neck out for nobody”–has joined him in common cause against the Third Reich. Rick has sacrificed much, including his business and the woman he loves, but realizes that events have compelled him to do more than look out for No. 1.

I found myself thinking about Rick last month, following the terrorist bombings in London and Sharm el-Sheik, Egypt. By now, it should be crystal clear that in regard to the war on terrorism, we are in for a protracted struggle with a force that is as pitiless and fanatical as any faced in World War II. And I wonder if the insurance industry is really ready to join the fight.

On the face of it, all the terrible news from abroad last month couldn't have come at a better time for insurers. At the end of June, the U.S. Treasury Dept. had issued a long-awaited report stating its opposition to renewing the federal Terrorism Risk Insurance Act in its current form. The act is set to expire at the end of the year. U.S. Treasury Secretary John Snow said the Bush Administration would support an extension of TRIA only if significantly more risk was shifted to the private insurance market.

But after the terrorist attacks overseas, politicians on both sides of the aisle rallied to TRIA's support, or at least muted their criticism of it. U.S. Rep. Michael Oxley (R-Ohio), chairman of the U.S. House Financial Services Committee, pledged he would move a TRIA renewal bill of some kind to the House floor. Treasury Secretary Snow, appearing before Oxley's committee, stressed that the Administration wanted only to amend–not eliminate–TRIA. Even Fed Chairman Alan Greenspan weighed in, saying insurers cannot be expected to go it alone in providing coverage.

The upshot is that TRIA's supporters appear to be in the driver's seat. On the whole, this is positive, but I hope the industry doesn't overplay its hand. Certainly, it would be terribly ill-advised for the federal government to completely remove its terrorism “backstop,” but insurers also should be open to the idea of accepting a greater degree of risk.

Currently TRIA is triggered upon the certification of an act of terrorism causing $5 million or more in losses. Insurers pay a deductible this year equal to 15% of their direct earned premiums from last year. After that, the government pays 90% of covered losses up to the program's $100 billion cap, with insurers paying 10%. There is an “insurance marketplace aggregate retention” of $15 billlion this year. If insurers' required payments did not satisfy it after a loss, policyholders would be assessed for the difference.

The risk that insurers are required to accept under TRIA is not insignificant, but the Bush Administration would like to see it increased. Among other things, Snow has said TRIA's trigger should be raised to $500 million from the current $5 million. But he's also said the $500 million would be an annual aggregate–not a per-event–trigger, and that the figure was not set in stone. Snow also has said the Administration would like to see insurers' deductibles and co-payments raised and would like to remove certain lines, including GL and commercial auto, from the program.

It now looks like TRIA will be renewed, although some of its provisions may be modified. In lobbying over those details, I hope the industry doesn't take too hard a line. A good case can be made that the industry is indeed capable of accepting some additional risk. Last month, the Insurance Information Institute issued a report stating that in the first quarter of the year, the industry achieved a 91.9 combined ratio, the best for any quarter that ISO and the Property Casualty Insurers Association of America have tracked. The first-quarter return on surplus was 15.1%, which III called “extraordinary,” noting that it tops the Fortune 500's 14.5% expected 2005 return on equity. The glowing first-quarter report followed a year in which the industry posted its first underwriting profit in 26 years–despite incurring $27.5 billion in catastrophe losses. Meanwhile forecasters like A.M. Best and Conning Research & Consulting are bullish on property-casualty insurers' prospects for the next couple of years. Sure, the industry still has its problems, but unquestionably it is in better shape than it was after 9/11, when TRIA was hammered out.

In normal times, in a country in which the mantra for most businesses is maximize shareholder value, it would be illogical to expect insurers not to focus like a laser on their own interests and to advocate for those interests to the best of their abilities. But these are not normal times. Rather, our country is at war with an adversary that has little regard for shareholders or Western culture in general.

The New York Times recently reported that many in the military wonder whether they are fighting this battle alone, because they see little evidence society wants to be inconvenienced by it. What does the industry say to them? Closer to home, what does it say to all those in the industry who died in the collapse of the World Trade Center?

Rather than use the latest international incidents to say the current federal backstop must be maintained as is, I hope insurers and reinsurers declare that in light of these outrages, they will take on as much additional responsibility for the terrorism risk as they can, thereby freeing Uncle Sam's assets and credit for deployment on other fronts.

If the industry does that, it will be saluted by the military and its own ghosts of 9/11, and will be greeted, “Welcome to the fight.” Or does that kind of commitment to the common cause exist only in the movies?

Special Reports /

What's Going On: In debate over TRIA, the industry must remember this

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