In the latest war of words over the future of the Terrorism Risk Insurance Act (TRIA), the president of the Insurance Information Institute accuses the Consumer Federation of America (CFA) of being anti-consumer for its opposition to an extension.

I.I.I. President Robert Hartwig tells PC360 that he is surprised by what he says is an anti-consumer stance by the consumer protection group because failure to renew TRIA would jeopardize construction projects, costing jobs and doing damage to a fragile economic recovery.

Says Hartwig, "Fundamentally, you have to view it this way; if TRIA were not in existence then insurers would simply not write the coverage at all in most instances."

Hartwig made his comments after CFA's Director of Insurance J. Robert Hunter issued a statement questioning the need for TRIA's renewal, calling it free insurance for an industry that could easily handle $100 billion in losses.

"The current industry surplus of nearly $600 billion dwarfs the $24 billion (in 2013 dollars) on insurer losses from 9/11," says Hunter.

Pointing to the industry's healthy capitalization, Hunter says that the industry's ratio of net written premiums to policyholder surplus would still be at an "ultra safe" level even if "an almost unimaginable terrorist event" of $100 billion were to occur.

Hunter says the industry does not need TRIA, but only wants it because carriers have become "nervous nellies" who prefer "extreme caution to their normal risk-taking role to the detriment of those needing permanent insurance protections in place."

He adds that TRIA was never meant to be permanent.

He goes on to say that another reason insurers want to continue TRIA, which is set to expire in 2014, is because carriers are profiting from free insurance coverage. He says that, based on earlier studies from the Congressional Budget Office, over the period from 2002 to 2012 insurers have saved $7 billion by not paying actuarially sound premiums into the program.

"We understand the desire of the insurers to keep a free reinsurance program and thus further expand their profits, but at a time of record-breaking federal-budget deficits, we question the wisdom of providing multi-billion dollar subsidies to an industry that can easily afford to insure many terrorist events even larger than 9/11," says Hunter.

He goes on to say that the Federal Insurance Office should be working with state regulators in instances where it is difficult to obtain terrorism coverage.

Hartwig minced no words in his swift criticism of Hunter's analysis, saying it is similar to arguments Hunter has leveled against the program in the past.

Hartwig says Hunter's analysis of surplus is wrong because the allocation of dollars is not an aggregate geared to cover a single risk, but backs the array of commercial and personal lines products.

Hunter's ratio of net written premium to surplus is also specious, Hartwig says, and reflects "antiquated thinking" because recent catastrophic events demonstrate the need for a well-capitalized industry that can handle the mounting expense of natural disasters.

As far as insurers paying premiums, Hartwig notes that the Treasury Department does have a mechanism for collecting funds paid to insurers in the event of a major terrorist act.

In an interview, Hunter says that while non-renewal of TRIA is his first preference, if it is renewed then insurers should pay premium for the coverage. He believes the government should establish some parameters for stepping in if there is an extraordinary attack of nuclear, biological or chemical nature, but should insist that the industry cover anything else.

Special Reports /

CFA's Hunter, I.I.I.'s Hartwig Spar on Need for TRIA Renewal

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