A top official of Marsh, Inc. opened a congressional debate onthe Terrorism Risk Insurance Act by saying the sunset of thefederal backstop would make it difficult for insureds withsignificant exposures in major cities to getcoverage. 

Peter J. Beshar, executive vice president and general counsel ofMarsh & McLennan said, "The absence of, or a seriousmodification to TRIA, could severely impact the workers'compensation market."

At a hearing on reauthorization of TRIA held bythe House Financial Services Committee,Beshar also defended the program by saying it is"the backbone of a healthy terrorism insurance market that providespolicyholders with affordable and widely available coverageoptions" while preventing the taxpayers "from absorbingvirtually all of the financial loss in the event of a terroristattack."

Committee chair Rep. Jeb Hensarling, R-Texas, said hewas skeptical of the program's need. Members fromconservative Texas districts dominate the House FSC, and industryofficials acknowledge they will be a tough sell forreauthorization. The program sunsets Dec. 31.

"As we look at the national debt clock, which I know isinconvenient to some, it principally turns because insuranceprograms–be they social insurance programs such as Social Securityand Medicare or others–the government has not done a particularlygood job," Hensarling said. "That ladies and gentlemen, representsa man-made disaster. And it will certainly color my opinion on thismatter."

Against that background, Beshar; Gordon Woo, acatastrophist with Risk Management Solutions; J. Eric Smith,president and CEO of Swiss Re Americas; and JaniceAbraham, CEO of United Educators, spoke of the importanceof TRIA.

Beshar said doubts about TRIA's future "are alreadyaffecting the primary insurance market, particularly on theworkers' compensation line of business," as noted last week in comments by Robert Gordon, senior vice presidentof policy development and research at the Property and CasualtyInsurers Association of America.

Beshar said there are "indications that carriers are negativelyreacting to TRIA renewal uncertainty by non-renewing insureds withlarge employee ccumulations in major urban cities."

Beshar sought to address the skepticism voiced by Hensarling andother conservatives on the panel by suggesting ways that theprogram could be modified to reduce government exposure.

For example, he said the company deductible could be increased,hopefully incrementally, from 20 percent, which he said would beconsistent with the growth in property and casualty industry'ssurplus; increase the industry's industry aggregate loss triggerfrom $100 million to $1 billion, also over time; and potentiallyincrease insurers co-participation from 15 percent to 20 percent ormore.

He also suggested that the program be reauthorized for 10 years,that Congress specifically clarify during the reauthorizationprocess that coverage should be provided by TRIA for all forms ofterrorism (i.e., conventional and Nuclear chemical biologicalradiation (NBCR) if coverage is afforded on the primary policy.

For instance, Beshar said, "there is ambiguity" in the marketcurrently as to whether TRIA covers workers' compensation in theevent of an NBCR-related act.

He also said a reauthorized TRIA should clarify that it addresscyber terrorism, which he called a "new terrorism risk."

Go to next page to see more comments on TRIA…

Leigh Ann Pusey, president and CEO of the AmericanInsurance Association

"Terrorism is a unique risk that remains uninsurable without thesuccessful partnership provided by TRIA. The programprovides the necessary stability and certainty to prevent economicdisruption while providing for an orderly recovery following anevent. It is due to TRIA that terrorism risk insurance is widelyavailable today.     

"TRIA enables insurers to cover this intentional man-made riskthat defies predictability. Unlike natural catastrophes,where the industry can leverage scientific information dating backhundreds of years, only the government has access to the criticalinformation insurers would need to underwrite this uniquerisk. There is simply no way for insurers to gauge thefrequency, location and means used to carry out terrorist attacks,which are intentional events largely controlled by the terroriststhemselves.  Similarly, because terrorism is a dynamic andinterdependent risk, the benefits of individual mitigation effortsare diminished.

"While AIA welcomes the debate on whether TRIA is the bestlong-term solution for managing terrorism exposure, its first 11years have been highly successful."

Jimi Grande, senior vice president of federal andpolitical affairs for the National Association of Mutual InsuranceCos.

"For over a decade, the risk-sharing mechanism created by TRIAhas ensured our national and economic security at virtually no costto the taxpayers. Allowing this program to expire or materiallyaltering the trigger or deductibles would lead to higher costs forthe insured and less coverage in the market, which increases theultimate burden on taxpayers.

"We saw after 9/11 what kind of damage to the economy ispossible. Many lenders require terrorism coverage, andwithout TRIA that financing would dry up, causing developmentprojects to grind to a halt and costing thousands of jobs. Thishappened in the immediate aftermath of 9/11 and was one of the mainreasons TRIA was created in the first place."

Martin DePoy, spokesman for The Coalition to InsureAgainst Terrorism

"Numerous studies, including studies by the President's WorkingGroup on Financial Markets, the Government Accountability Office(GAO) and, recently, the global insurance brokerage and riskmanagement firm Marsh, have highlighted the unpredictable nature ofterrorism and why insurers cannot reliably model for thisexposure. A new study by the global reinsurer Swiss Reconcludes that terrorism remains 'uninsurable by privatemarkets'.  All available evidence continues to indicatethat private terrorism risk coverage would once again disappearwithout the Terrorism Risk Insurance Program.

"Recent events, including this spring's deadly Boston Marathonbombings, have clearly demonstrated that the threat of terrorism isstill very much with us.  TRIA is as necessarytoday as it was in the wake of the 9/11 attacks.