NEW YORK--Regulators and insurance industry representatives expressed hope today of fashioning some sort of plan over the next few months that will help insurers with terrorism risk when the current federal backstop expires next year.

At an all-day hearing convened by the National Association of Insurance Commissioners insurance industry representatives expressed virtual unanimity that there needs to be some federal involvement in covering terrorism exposures once the Terrorism Risk Insurance Act expires next year.

New York Superintendent of Insurance Howard Mills, who chairs the NAIC's Terrorism Insurance Implementation Working Group, which heard the testimony, said he felt the industry position was "evolving."

"There are those who want to stick with the federal backstop while others are coming around to a pooling concept," he said.

Mr. Mills said he hoped the Working Group will have a solid proposal to present to federal officials by the summer, and in that regard will be working in a parallel process with industry in coming to some consensus.

The President's Working Group on Financial Markets will be scrutinizing the terrorism insurance marketplace when it meets this fall and comes to some consensus by the end of September.

With the exception of Travis Plunkett, legislative director of the Washington-based Consumer Federation of America, no speaker at the hearing put forth any program to deal with a world in which Congress declines to take any role in providing federal support for terrorism insurance losses.

"At that point people would have to start to look at exclusions and those are things we would have to look at," Mr. Mills said. "But we don't want to cross that bridge because we have been adamant in not endorsing any exclusion for terrorism."

Debra Ballen, American Insurance Association executive vice president, said her organization is participating in an all-industry process to develop a new financing mechanism that could provide a bridge between individual company capacity to assume risk and a targeted backstop.

"What's needed is a long-term mechanism that is sensitive to the federal government's desire to reduce its participation in this market, while at the same time recognizing that terrorism remains uninsurable," she said.

Mr. Plunkett, however, said the industry's constant refrain about the purported uninsurability of terror risk has caused it to lose credibility on Capitol Hill.

Testifying on the part of corporate insurance buyers, Mike Fenlon, a board member and director of external affairs for the Risk and Insurance Management Society, said RIMS advocates nine key principles to develop a long-term solution.

Included among these principles, RIMS said in a statement, is that "the private market will not be adequate to cover acts of terrorism without TRIA and stipulates that the federal government must act as a reinsurer."

Additionally, RIMS suggested that "a program should be proactive and not implemented ad hoc after an attack."

RIMS said that corporate insurance buyers "also support a private/public partnership, such as some form of risk pooling." RIMS also "recommends the program be inclusive of nuclear, biological, chemical, and radiological events caused by terrorism, as well as eliminate the distinction between 'foreign' and 'domestic' acts of terrorism."

RIMS said its membership "also promotes the notion that financial incentives and eligibility for participation in the program be considered to encourage creation of private insurance capacity."

Special Reports /

Industry, Regulators Mull Post-TRIA World

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