A study to be published shortly will show that government support for carriers that insure terrorism risk is beneficial to taxpayers because a federal backstop encourages insurers to write policies for an otherwise uninsurable risk, an economist with the Rand think tank said.
The remarks of Lloyd Dixon, Rand Corp senior economist, were made yesterday at a Washington Center for American Progress forum held with Des Plaines, Ill.-based Property Casualty Insurers Association of America (PCI).
Quotes and a description of talks by Mr. Dixon and others were furnished by PCI.
Also making the case for rapid renewal of the Terrorism Risk Insurance Act, which expires Dec. 31, were academicians and business people, according to the PCI account.
Mr. Dixon said without TRIA, terrorism coverage would not be as readily available, leaving more liability uninsured and ultimately covered by the federal government.
“In 76 percent of the cases we look at, TRIA actually costs taxpayers less than allowing it to expire,” Mr. Dixon said.
He also noted that mandatory “make available” coverage for chemical, nuclear, biological and radiological (CNBR) attacks would have as much of a negative effect on TRIA coverage as if it had expired.
“Requiring insurers to offer mandatory (CNBR) coverage doesn’t end up increasing the take-up rates very much,” said Mr. Dixon. “The reason is that there’s a significant increase in premium to provide the coverage. The take-up rate for conventional coverage will go down. You’ll end up with outcomes as if you had let the program expire,” he explained.
Frank Cilluffo, director of the Homeland Security Policy Institute at George Washington University, said concerning TRIA, “where we are today, there’s an awful lot of talk but not necessarily a whole lot of action. I hear a lot of nouns but not a lot of verbs. We need to turn those nouns into verbs.”
Chip Rodgers, Real Estate Roundtable senior vice president, noted that 14 other nations recognize that terrorism risks are uninsurable, and he called for a permanent solution as well as an end to the distinction between foreign and domestic terrorist acts.
Brad Wood, Marriott International senior vice president of risk management, noted the importance of small to medium-sized insurers to the business community and said extending TRIA would bolster the insurance market by keeping more players in the game.
Janice Abraham, president and CEO of United Educators, a risk-retention group representing universities and school districts across America, agreed that it was vital to keep small to medium-sized insurers involved in the terrorism insurance market, and one way to do so was to keep deductibles manageable.
“If it only works for big, multinational companies, we as citizens lose,” Ms. Abraham said. “Currently, the deductible is 20 percent of premiums. For United Educators, that would be $25 million we’d pay out immediately. Those kinds of numbers clearly threaten solvencies of small to midsized companies.”
She and other speakers called for long-term extension of TRIA.
Michael Gray, president of New Orleans-based Gray Insurance Co., said the proper role for the federal government might be as a reinsurer.
“The federal government is the only one in a position to make the statement that needs to be made as to where to provide a relief mechanism to the general public,” Mr. Gray said.
Ben McKay, senior vice president for PCI federal government relations, said, “We urge Congress to move forward quickly to extend this much needed program, for the good of consumers and America’s economy.”