Forum: U.S. Should Start A Pool Or Extend TRIA

"How would that help us with losses of about $250 billion" in the event of a major attack? he asked.

If TRIA is allowed to lapse, he warned, the effect on the government could be the opposite of what the Treasury and others have predicted.

Instead of a private market growing to assume terrorism risk, he suggested that without TRIA insurers would exclude what they know is an unpredictable risk and therefore reduce the amount of capacity in the market.

"A smaller private market will further expose the federal government to more losses in the event of a terrorist attack," he said

In the short term, Mr. Heck agreed that the deductibles and trigger levels of the current TRIA program should be raised "moderately."

In the longer term, however, he said that Congress would have to establish some form of public/private risk sharing mechanism similar to what is seen in Europe.

"It doesn't have to be Pool Re," he said, referring to the name of the partnership in Great Britain, "but it does have to be some kind of pool. It has to have some government backing and full government support."

Lawrence Mirel, the outgoing commissioner of the Department of Insurance, Banking and Securities for the District of Columbia, offered an even more specific proposal for a federal pool that would have uniform premiums for all policyholders and would not be limited solely to covering terrorism risks.

The Pool Re system, which he noted was proposed during the original debates that lead to the development of the TRIA program, was initially rejected by lawmakers.

However, Mr. Mirel said that this was more a fault of the federal system, which has only limited experience and expertise on insurance issues, than of the concept. "They didn't really understand it all that much," he said.

However, under a pool system, the amount of reserves for a catastrophic loss would rise much more quickly and could provide a better cushion before the federal government became involved. At the heart of his proposal, however, was the idea that the pool would be available to cover any catastrophic loss once it has reached a certain threshold.

"I don't think it matters what the cause of a loss is," Mr. Mirel said. "The trigger for an event should be the size of the loss."

However, Travis Plunkett, legislative director for the Consumer Federation of America, cautioned that the pool concept was not without its own risks.

The initial Pool Re-based proposals offered by the insurance industry during the original TRIA debates" were extremely bad," he said, and could have caused more damage to the market by allowing insurers to cherry pick their risks.

Additionally, he noted that the added complication of expanding the scope of a pool would make things much more difficult for getting it past Congress. "The more we hear about this pool covering other losses, the less likely it is to occur," he said. "I just don't think that it's likely that Congress will get it right on the pool by the end of the year."

Mr. Plunkett said the odds of a simple extension of the current TRIA program, even with the raised thresholds, passing before the scheduled expiration date at the end of the year were "too close to call" at this point.

Mr. Heck said he was hopeful of Congress getting a bill done this year, but thought it more likely that an extension would be passed early next year. Mr. Mirel said that it is becoming increasingly unlikely that any legislation would be passed this year.

"My hope was that, facing the deadline, Congress would step up to the plate and adopt a long-term solution," he said. But given the short amount of time left for lawmakers to act, and the other issues crowding the legislative calendar, "it's beginning to look like we're running out of time."