RIMS Pushes For TRIA Extension In Congress
Risk managers see federal insurance backstop as vital for stability of terrorism cover
The Risk and Insurance Management Society affirmed its support for legislation extending the Terrorism Risk Insurance Act by an additional two years to avoid market disruptions like those that occurred after Sept. 11, 2001.
Janice Ochenkowski, vice president of external affairs at the New York-based RIMS, as well as senior vice president at property manager Jones Lang Lasalle Inc., told National Underwriter that RIMS supports passage of the bill and is pleased legislation has been introduced.
Renewal of TRIA, she said, is very important to RIMS members because it has "provided an important backstop to the marketplace and allowed the availability of necessary coverage limits."
Before TRIA, she said, the marketplace "had limited [terrorism] coverage available, there was little discipline in the market, you couldn't rely on rates being consistent or coverage terms being regular. The passage of TRIA added order and discipline to the market."
Member companies which include 84 percent of the Fortune 500 corporations, RIMS said are concerned about the capacity of workers' compensation and property and casualty insurers to underwrite terrorism without a federal backstop in place. Although TRIAs passage would not affect each and every member of RIMS, she said, it would impact "a number of our members and is important to many of them for the stability of their insurance programs."
Those RIMS members with a large concentration of employees, those located in urban areas and/or those with large, valued facilities (regardless of location) are most concerned about passage of TRIA, Ms. Ochenkowski said.
What risk managers will face if TRIA is allowed to expire on Dec. 31 depends on the development's impact on the market. "We do know that before TRIA there was chaos," she pointed out. "After TRIA there was availability, there were pricing decreases, and there was order in the marketplace."
As a reinsurance backstop, RIMS said, TRIA facilitates commerce by quantifying maximum loss exposure for insurers. With worst-possible losses known, insurers can continue to offer commercial terrorism coverage to corporations as well as public and private entities.
Prior to the enactment of TRIA, and after the Jan. 1, 2002 expiration of reinsurance contracts, required limits of commercial insurance were not available, RIMS noted.
RIMS said it is concerned the stable reinsurance market that policymakers anticipated when they determined a timeline for TRIA does not yet exist. RIMS added that because of a variety of other market-driven losses, the current reinsurance market is not stable and will not be able to fully assume the risk of terrorism, which is extremely difficult to predict or price.
Although reliance on TRIA is critical in the short term, RIMS said it is imperative to find other mechanisms to provide effective and reasonable commercial insurance options against catastrophic terrorist attacks. To that end, RIMS said it welcomes TRIA's provision directing the Treasury Department to provide a report to Congress on long-term solutions for expanding the availability and affordability of terrorism insurance without a federal backstop.
Reproduced from National Underwriter Edition, March 4, 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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