Although the witnesses represented a range of viewpoints, therewas a remarkable amount of agreement among them as to what shouldbe done about the Terrorism Risk Insurance Act (TRIA), which onceagain is coming up for renewal. Unless it is renewed, itwill expire on December 31, 2014. And even though therewas a large area of agreement, there were also somedifferences. Those differences could make it difficult toget a reauthorization bill through the Congress. 

Here is what everyone agreed on, both the witnesses and Membersof the Committee and Subcommittee who spoke during thehearing: 

• TRIA has worked exactly as intended. That is, becauseof the federal backstop, a private market for terrorism risk hasstabilized and grown.  Terrorism risk coverage isgenerally widely available and reasonably priced.  Thecapacity of the private insurance industry to cover losses from anyfuture terrorism attack is much greater than at any time since 9-11and is growing.
• The federal backstop has not cost taxpayers adime. Because no terrorism event since the Act was passedhas exceeded the thresholds or tripped the triggers, the federalgovernment has not had to pay out any money so far.
• Nevertheless, TRIA should be renewed once more because, atleast in the short term, failure to renew will result in a sharpconstriction in the market. Terrorism coverage will become moredifficult to get and more expensive. No one thought therewould be no coverage available at all for terrorism risk if TRIAwere not renewed, but such insurance as would be available wouldbe more expensive and would have exclusions and gaps incoverage. One witness, Robert Hartwig of the Insurance InformationInstitute, said it would resemble Swiss cheese.
• Although not everyone agreed that changes to TRIA arenecessary, all agreed that whatever changes are made should beimplemented over a period of time, phased in so as not to undulyrile the market, especially for smaller insurers who provide aconsiderable amount of the coverage currently available.
• All agreed that whatever is done—whether renewal without changeor renewal with major changes, or even non-renewal—it should bedone sooner rather than later, because insurance contracts for 2015are already being negotiated.  

Now for the differences: 

• Some thought that the program has served its purpose as atemporary measure and now the markets should be allowed to takeover with no further help from the federal government. The witnesswho most closely held this view was Kean Driscoll, CEO of ValidusReinsurance, which, according to Driscoll, is the largest writer ofstand-along terrorism risk insurance in the world. But even he didnot think TRIA should be allowed to expire rightaway.  Rather, he foresaw a period of yearsduring which it could be phased out. And even Driscoll thought thatthe federal backstop would be necessary on a permanent basis forso-called NBCR terrorism risks—that is, terrorism using nuclear,biological, chemical or radiological agents—and for cyberterrorism. Driscoll thought the private insurance marketwould never be able to handle those without abackstop.  But conventional terrorism risk, hethought, could eventually be handled by the private market withouta federal backstop.  Another witness, Ernest Csiszar, aformer state insurance commissioner (South Carolina) andformer president of the NAIC, thought that the triggershould be raised from the current $100 million in total lossesbefore the federal backstop comes into play to as high at $15 to$20 billion in losses. But, Csiszar cautioned, that it shouldhappen in phases, over a period of five to 10years. Another witness, Robert Hartwig, thought that thecurrent $100 million trigger had worked well and had kept priceslow. He saw no reason to change it. Among members of theFinancial Services Committee who spoke at the hearing, it was clearthat the Democrats favored keeping TRIA as is, fearing thatincreasing the trigger would simply mean higher prices forpurchasers of insurance for no benefit. Republican members wantedto see the free market take over the program entirely, at leasteventually, but did not dispute that this would mean higherprices.
• The dispute is philosophical rather thanpractical. All agree that TRIA has allowed the privatemarkets to grow and prosper. Democrats believe that itshould, therefore, be made permanent, whereas Republicans draw theopposite conclusion; if the private market is working well now,let's get the federal government out of it.
• One witness, Sean McGovern of Lloyd's of London, pointed outthat all the large European nations have permanent backstops inplace for their private market terrorism risk providers. Asubcommittee member pointed out that the UK Government requiredinsurers to pay premiums for this "reinsurance" while the U.S.Government does not. But McGovern said that the premiumpayments are put into a pool for payment of terrorism losses,something that would not be possible under current U.S. taxlaws. 

Based on listening to the hearing, it is my view that TRIA willbe extended and not allowed to expire on December 31,2014.  No one, not even the most ardent free marketproponents, argued that the program should be allowed to lapse atthis point.  Rather the question is whether it should beextended as it exists today or if it should be modified with theaim of eventually doing away with a federal backstopentirely. Since the Democrats generally believe that thesystem is working well as it exists today, keeping prices low andcoverage widely available without any cost (so far) to thetaxpayers, they are not likely to go along with any attempt tochange it — which will undoubtedly mean higher costs for consumers— just to satisfy a philosophical position that the governmentshould not get involved with the free market. Republicans generallywant to see the government, eventually, out of the insurance marketplace, even for terrorism insurance, believing that the privatemarket can and should handle the risks. Meanwhile, theindustry, which can handle much of the risk, believes that itcannot handle all of it, and certainly not NBCRrisks.  Since the chairman of the full FinancialServices Committee, Jeb Hensarling of Texas, is a strongfree market advocate, who voted against extended TRIA the twoprevious times it was renewed, and who will therefore not bewilling to push forward a renewal bill without major changes, theodds are that the extension, when it comes, will be at the lastpossible minute.  

That means that insurers must plan for all contingencies — thatTRIA will be extended as is for a longer period of time (five to 10years), that it will extended for a shorter period of time, andwith higher triggers and copayments by the industry, and that itwill not be extended at all (not likely, but certainlypossible). How can this be done, when negotiations arealready taking place for insurance that will come into effect in2015? The answer is that it will be very difficult andcostly, but policies must be able to provide for allcontingencies.