TRIAs Fate In Jeopardy As Expiration Looms Senate set to begin debate over extension on March 3; conflicting reports released
Washington
As the clock clicks loudly in the background for insurers, a hearing on whether the Terrorism Risk Insurance Act should be extended beyond its scheduled Dec. 31 expiration will be held March 3 by the U.S. Senate Banking Committee, with conflicting reports about the programs merits already stirring controversy.
Regarding TRIA action in the House of Representatives, Joel Wood, chief federal lobbyist for the Council for Insurance Agents and Brokers in Washington, said the insurance industry has a "comfort zone" that the House Financial Services Committee "will be there to act" when called upon.
However, "I wouldnt be surprised to see Rep. Mike Oxley, R-Ohio, chairman of the committee, hold off on committee action in order to gauge whether action on this bill is achievable in the Senate," he added. (For more on the battle in Washington over TRIA, see page 12.)
Meanwhile, the debate over whether TRIA is worth renewing is already well underway and quite heated, with reports released reaching opposite conclusions on the merits of the federal terrorism reinsurance program created under the 2002 law.
Aon Corp. issued a report on terrorism risks in the United States that concluded it is essential TRIA be extendeda conclusion opposite from one reached in a Congressional Budget Office report released earlier this month.
"After a fairly chaotic introduction, TRIAwith a few exceptionshas largely fulfilled its short-term public policy goal of creating a readily available supply of terrorism capacity at affordable prices," according to the Aon report, "Terrorism Risk Management & Risk Transfer Market Overview."
"Even with substantial net insurer retentions, TRIA has clearly benefited market capacity and pricing," said the Aon report. "The long-term picture for the terrorism risk market remains as unclear as the risks it insures. No viable alternative funding mechanisms for this risk have emerged from the capital markets or from private market pooling arrangements."
The Aon report said recent studies by the governments own General Accounting Office and the American Academy of Actuaries "both acknowledge this reality," adding that "in the absence of TRIA or some alternative scheme, the market may well shrink to stand-alone terrorism capacity only, as carriers (with some few possible exceptions) are unlikely to retain risk of this volatility on a net basis."
In contrast, a Congressional Budget Office report released Jan. 6 concludes that the costs to the economy of "scaling back" federal coverage for terrorism insurance "is likely to be small," and that eliminating the program when it expires at the end of this year could result in "gains in economic efficiency." One reason would be that letting the program expire could mean reduced losses in the event of an attack "if the resulting higher premiums encouraged firms to adopt measures to reduce losses."
Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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