Schumer At TRIA Hearing: Make Act Permanent

Mr. Hunter characterized the backup TRIA provides to carriers for catastrophic terrorist attacks as "free reinsurance," and said, "I don't think the taxpayers should have to shoulder that."

TRIA expires at the end of the year, and a Senate Banking Committee hearing last week dealt with the program's effectiveness since it was enacted in November 2002. A bill (S. 467) introduced several months ago by Sens. Robert Bennett, R-Utah, and Chris Dodd, D-Conn., and co-sponsored by a host others, would extend the program for two years while a permanent solution to the issue of who should pay for damages caused by terrorist attacks is debated.

During the question-and-answer segment, Sen. Dodd said: "If there were a private sector solution to this problem, we wouldn't be here." He noted that some senators and industry officials had suggested full government coverage, while others had called for a fully private market. "We need a hybrid, to get this right," he said.

Sen. Schumer said many new construction projects are on hold because provisions in current insurance policies say coverage for terrorism risk expires at the end of the year, regardless of the termination date of the policy, because the reinsurance offered by TRIA ends Dec. 31. "We will suffer significant economic loss if the program is not renewed," he said.

Renewal talks are on hold because the Treasury Department is mandated under the existing law to send a report to Congress on the program's effectiveness by June 30.

Douglas Holtz-Eakin, director of the Congressional Budget Office, a bipartisan arm of Congress, did say that TRIA has "served its purpose of immediately expanding the supply of terrorism insurance." For owners of high-risk properties, he said, "the law has succeeded in increasing the availability and lowering the price of coverage for?terrorism."

As a result, he added, "TRIA has led to an increase in the percentage of companies that buy terrorism coverage. It has also given private insurers time to raise financial capital, improve their models of risk, and re-enter the market."

But Howard Mills, acting New York insurance superintendent, testifying on behalf of the National Association of Insurance Commissioners, disputed Mr. Holtz-Eakin's assertion that TRIA lowers the incentive for property owners to improve safety, saying there is "little evidence" to justify such a conclusion. "TRIA has been successful," he said. "TRIA has operated exactly as the Congress intended it."

He elaborated by saying that companies have already made conditional filings in several states to exclude terrorism coverage if TRIA expires. "I believe these filings show that the insurance industry is not yet willing to assume the full risk of terrorism coverage at this time," Mr. Mills said.

Brian Duperreault, chairman of ACE Ltd., speaking on behalf of the American Insurance Association, also urged passage. "There are those who suggest that TRIA should be allowed to expire and that the ?free market' should respond to fill the need for terrorism insurance," he said. "However, property-casualty insurers do not operate in a free market environment."

He explained that under the existing state regulatory structure, insurers cannot exclude or limit terrorism coverage in certain commercial lines such as workers' compensation or statutory "fire-following" insurance for property policies in many states. In addition, in virtually all of the states, he noted, "there is no "free market" because of a complex system of government price and product controls that "artificially suppress terrorism insurance rates and deny product choices to consumers."

Ernie Csiszar, president of the Property Casualty Insurers Association of America (PCI), testified that his members "believe in the power of free markets and support competition-driven solutions to public policy problems." However, he added, "there are some instances–terrorism insurance being one–where only a public/private partnership can marshal the resources to effectively protect individual consumers and our nation's economic security."

Mr. Csiszar stated that the three primary obstacles to creating an effective and efficient terrorism insurance market are the inability to accurately underwrite and price such risks, the lack of sufficient financial capacity in the industry, and regulatory impediments in certain markets."