Risk Managers Challenged To Defend TRIA

New York

Corporate insurance buyers must get more involved in thecampaign for extension of the federal Terrorism Risk Insurance Actto avoid a major market dislocation, industry officials urged herelast week.

"From a consumer standpoint, I doubt there is anyone out therewho would say to just let [TRIA] expire," said John T. Sinnott,vice chairman of Marsh & McLennan Companies Inc., during aconference here titled: "TRIA Update & Strategies For ManagingThe Uncertainty," sponsored by MMC's Marsh brokerage arm.

If TRIA is not renewed before its scheduled Dec. 31 expiration,warned Mr. Sinnott, "we're back to square one. We'll be looking atthe same difficulties with clients that have large aggregations onthe workers' comp side, or those that have so-called targetproperty risks or are located in particular geographic areas."

Finding coverage for terrorism risks without the federalreinsurance backstop provided by TRIA will be far more difficult,if not impossible, added Mr. Sinnott. "All we're asking for is toallow our clients to have availability to transfer their risk," hesaid.

Lack of reinsurance availability if TRIA expires will limitcapacity and coverage for buyers, as well as affordability, henoted. "Yes, it affects cost, although I don't emphasize the costbecause it's not the real issue," he said, adding that cost mightbe irrelevant if reinsurance disappears, taking the primary marketalong with it.

September's Hurricane Katrina losses, noted Mr. Sinnott, are anadded factor in a general market tightening causing carriers towithdraw from the property market. He said Endurance SpecialtyHoldings of Bermuda and excess and surplus lines carrier JamesRiver, of Richmond, Va., were companies that recently dropped theline.

He recommended creating a mechanism that pushes the governmentfurther and further from terrorism risk over the long term. Headded that the insurer community is not in sync on the issuebecause carriers have different issues, exposures and balance sheetimperatives.

Mr. Sinnott said Washington needs to be involved for now becausewhile the government can't prevent hurricanes or earthquakes, "it'sthe government's responsibility to secure our borders" againstterrorist attacks. He said many corporations are doing their partand have tightened their security significantly since the attackson the World Trade Center and the Pentagon on Sept. 11, 2001.

He emphasized the importance of risk managers and othercorporate insurance buyers lobbying their lawmakers for TRIAextension. "There is nothing like Congress hearing directly fromconsumers. This has a big impact in Washington," he said.

The clock is ticking on expiration, and there is no consensus inCongress on whether to extend TRIA--or how radically to modify itsprovisions if it is extended.

"The worst news would be no extension," said Scott Sinder,general counsel for the Council of Insurance Agents and Brokers inWashington. "The key now is policyholder involvement."

Mr. Sinder advised corporate insurance buyers to contactindustry political representatives in their state, adding that oneof the most effective ways to be heard is to work with anorganization such as CIAB, the Risk and Insurance ManagementSociety or the Chamber of Commerce, which can better coordinatejoint lobbying efforts to focus legislator attention.

Mr. Sinder said that recent events could prove to be adistraction, taking the focus away from TRIA. These include thereplacement of Supreme Court Justice Sandra Day O'Connor, theaftermath of Hurricanes Katrina and Rita, as well as politicalproblems in Congress and the White House.

For example, Mr. Sinder explained that former Speaker of theHouse Tom DeLay, R-Texas, remains "the key" player on TRIAextension, despite controversy over his recent indictment foralleged campaign finance violations. Rep. DeLay "understands theneed" for TRIA but wants a long-term resolution rather than justadded extensions, believing that responsibility for terrorismcoverage should not ultimately lie with the federal government.

Jill Dalton, Marsh managing director for property andinternational practice in the New York Metro zone, said Marsh'sdata, which regularly tracks renewals, shows that insurer quotesare being delayed due to recent catastrophe losses and loomingterrorism exposures should TRIA expire.

As a result, according to Ms. Dalton, there is a tighteradherence to catastrophe models for pricing, limits andattachments, while capacity is being reduced. She also noted thatenergy markets have been heavily hit by the storm damage, whichcould mean rate increases up to 50 percent.

Paul D. McVey, Marsh managing director for global propertyclaims, noted that "there will be a lot of litigation" in the wakeof Hurricane Katrina, and many difficult coverage issues remain tobe decided. He said insurers are looking at each caseindividually.

"There is nothing like Congress hearing directly from consumers.This has a big impact in Washington."

John T. Sinnott, Vice Chairman

Marsh & McLennan Companies Inc.