Washington–A key federal official has voiced disagreement with the position of representatives of business and academia over what role government should play in terrorism reinsurance.
The division in viewpoints emerged Friday with the comments of Douglas Holtz-Eakin, director of the Congressional Budget Office.
Mr. Holtz-Eakin was one of several speakers on Capitol Hill at the National Symposium on Terrorism Risk Insurance voicing opinions on whether the federal government should be directly involved in ensuring access to terrorism risk reinsurance or instead should encourage the private market to take up the risk.
The session took place as the life of the current federal backstop measure, the Terrorism Risk Insurance Act, is ticking down to its Dec. 31 expiration date.
While several academics and an insurer make the case for federal involvement, Mr. Holtz-Eakin argued that the public sector should not be considered as the main source for terrorism reinsurance.
He noted that the concepts others proposed at the symposium were lacking in private sector participation, which he said is not as impossible as many in the insurance industry make it out to be.
"The idea that the private sector can't bear these costs is misplaced," Mr. Holtz-Eakin said. In fact, he explained, any role played by the federal government would eventually fall onto the shoulders of the private sector anyway, either as a surcharge after the fact or in the form of increased taxes to make up for increased government spending.
Mr. Holtz-Eakin argued that the federal government's role in dealing with terrorism risk issues should be more indirect, along the lines of helping the private sector carry the load of terrorism risk itself. "The federal role," he said, "is to ask and answer the question of how to best tap the resources of the private sector."
Professor Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes, with Robert Reville, RAND Center for Terrorism Risk Management Policy co-director, and University of Southern California Professor Detlof Von Winterfeldt, introduced a series of principles that the three said should guide policymakers as they consider solutions to the terrorism risk issue.
Among those principles is that terrorism should be considered as a national security issue, "and the public sector has responsibility for making terrorism insurance widely available and encouraging its purchase."
"This is an issue of urgency for Congress to consider, and an issue of necessity for Congress to consider in the next two months," said Mr. Kunreuther.
Jacques Dubois, the chairman of Swiss Re America Holding Corporation, said at the symposium that national security concerns on the part of the government, while understandable, also make it impossible for insurers to evaluate and underwrite terrorism risk.
Mr. Dubois said the government keeps information on terrorist attacks largely classified and added "that information is not available to the private sector and not available for insurance companies to assess the risk."
Mr. Dubois also argued for an extension to the TRIA program. "TRIA has worked," he said, adding that it has "protected" the insurance industry and allowed for the spreading of losses and risk. However, he also pointed out that TRIA was crafted as a temporary solution rather than a permanent system for handling terrorism risk.
"We need to recognize that this is not a temporary issue, and a temporary solution is not a good idea," he said. The government needs to establish a permanent system, Mr. Dubois added, and if that involves making the federal government the underwriter for terrorism reinsurance, "then let's make it so on this issue."
Sponsors of the symposium were the Communications Institute, the RAND Corporation, the University of Southern California, the Wharton School of Business, Congressional Quarterly and the Department of Homeland Security.
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