WASHINGTON–Insurance buyers and sellers told a joint congressional hearing yesterday that terrorism insurance coverage will be virtually unavailable without the help of a government backstop.

While the members of the House Financial Services Subcommittee on Oversight and the House Homeland Security Subcommittee on Intelligence, Information Sharing and Terrorism Risk Assessment were in agreement that the federal backstop has played an important role, there was some difference of opinion as to whether the private market can, or even should, establish its own system for covering terrorism risk.

Rep. Steve Israel, D-N.Y., took note of the urgency of the matter under discussion, saying “the clock is ticking.”

Mr. Israel, who does not sit on either subcommittee but was invited to participate in the hearing, mentioned there are only 17 months until the current version of the Terrorism Risk Insurance Act expires.

The task will not be easy, and Rep. Israel acknowledged that he doesn't believe “there's much of an appetite in Congress to give TRIA a second extension.”

Rep. Luis Gutierrez, D-Ill., the ranking member of the Homeland Security panel, said that he and others in Congress “do not want to see the federal government as the permanent reinsurer of last resort,” although he added, “at least not at the levels of the current TRIA legislation.”

However, Rep. Israel countered the intent behind terrorist attacks gives government an obligation to bear some of the burden of their outcome.

A terrorist attack, he said, “is not an attack on a building, it's an attack on this country.”

Rep. Barney Frank, D-Mass., also argued for a stronger federal role in providing against terrorism attacks.

“The cost of terrorism ought to be borne by the whole country,” he said. Although those costs obviously wouldn't be borne on an equal basis between big cities and less likely targets, Rep. Frank said, “to the extent that we can make these costs go across the board, we ought to do that.”

Republicans at the hearing focused on the challenges facing those who try to model for terrorism exposures, noting the nature of terrorism itself puts them at a sharp disadvantage.

“The insurance industry faces many challenges when trying to model a terrorism threat,” noted Rep. Robert Simmons, R-Conn., who chairs the Homeland Security subcommittee.

Among the more difficult problems, he cited, is that much of the information that would prove useful in modeling terrorism exposures “is sensitive, classified and locked away in a vault somewhere.”

However Congress decides to help, witnesses at the hearing stressed the strong need for a federal role in ensuring that terrorism coverage remains available and affordable.

“We think that some form of public-private partnership is required,” said Terry Fleming, director of external affairs for the Risk and Insurance Management Society. In addition to his role at RIMS, Mr. Fleming is also the risk manager for Montgomery County, Md., a suburb of Washington, D.C.

Mr. Fleming told the committee members of the responses to a recent survey RIMS conducted of its members. Of the responses, 86 percent said they do not believe they would be able to obtain sufficient coverage at affordable prices absent TRIA or “some other federal backstop,” Mr. Fleming said.

He added that an overwhelming majority, 82 percent, also believe the program should include coverage against nuclear, chemical, biological and radiological attacks, as well.

Further showing the importance of the TRIA program to the insurance industry, Mr. Fleming said that 75 percent of respondents to the survey said their policies written before the end of last year contained clauses conditioned upon the program being extended.

Christopher Lewis, vice president of alternative market solutions and P&C capital management for The Hartford Financial Services Group, argued that it is impossible for insurers to asses their terrorism exposure adequately, as terrorism “fails to meet the fundamental requirements of insurance,” in which the risks are homogeneous, random and independent, and their sources are understood.

“Hence, absent a fundamental change in the nature of the terrorist threat, terrorism will remain an uninsurable risk for the private market and any credible solution for financing the risk will require a continued public-private partnership with the U.S. government,” he said.

Special Reports /

Insurers Urge Federal Terror Solution To Congress

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