Insurers: Our Study Shows TRIA Need

The trade groups plan to use the study to urge Congress to enact a two-year extension of TRIA this year. The legislation does not expire until Dec. 31, 2005, but much uncertainty exists within the marketplace and within the industry as a result of Congress' apparent indecision in dealing with the issue. One of the factors involved is that the Bush administration has been unwilling to commit itself to a position on the bill.

Industry lobbyists now believe it will come up?if at all?in a lame duck session after the election. The House Republican leadership said they have to convene then to conduct unfinished business.

Security analysts and industry lobbyists said privately the real overhang they are concerned about is the uncertainty created by failure to renew this fall. While TRIA is not scheduled to expire until Dec. 31, 2005, insurers could possibly be on the hook for coverage in the early part of 2006 because insurance policies that extend into 2006 will be negotiated as early as this fall.

"With each passing month," the report says, "as annual policies come up for renewal, market dysfunction would increase if TRIA is not extended."

The study concludes that "the U.S. economy will be stronger with TRIA than without it. Over time, it may be possible to develop alternative approaches to TRIA. However, while several alternatives have been suggested, they are not in place today and we do not believe that any of them is viable in the near term." The study is "The Economic Effects of Federal Participation in Terrorism Risk"

Specifically, the report said that, even absent another major terrorist attack, U.S. gross domestic product may be $53 billion (0.4 percent) lower, household net worth may be $512 billion (0.9 percent) lower, and roughly 326,000 (0.2 percent) fewer jobs may be created because of the drag produced by the lack of a federal terrorism insurance backstop.

It adds that if another catastrophic terrorism attack, one approximately the size of the one that occurred on Sept. 11, 2001, occurred while TRIA was not in effect, "tens of thousands more jobs would be lost due to lack of insurance coverage and thousands of additional commercial bankruptcies could occur when compared to the fallout from the 9/11 event, because 9/11 losses were covered by the private insurance industry."

The study was written by Professor R. Glenn Hubbard, dean of the Graduate School of Business, Columbia University, and former chairman of the Council of Economic Advisers, and Bruce Deal, Managing Principal, Analysis Group Inc. The report was commissioned by the American Insurance Association, Financial Services Roundtable, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, Property Casualty Insurers Association of America, and the Reinsurance Association of America.