Washington–A study by the RAND Corp. has found the Terrorism Risk Insurance Act is not much of a government burden because only a huge terrorist attack or a series of large ones within a year would trigger a federal contribution.
That's because federal subsidies to insurance companies only go into effect if TRIA-covered insured losses exceed $15 billion, the report, issued earlier this week, said.
The study also suggests that the federal government consider encouraging uninsured businesses to buy terrorism insurance coverage, because somewhat less than half of all businesses now do so.
The think tank's report was released for publication yesterday with 67 days left before TRIA expires unless Congress approves its renewal in some form.
The Senate Banking Committee is seen as acting on a bill narrowing federal support within two weeks, while action by the House Financial Services Committee is not expected before the week of Nov. 14.
Responding to the report, officials of the Property Casualty Insurers Association of America urged legislators to "move swiftly" on a long term solution to the problem of insuring against terrorism risk.
"The RAND study shows that TRIA is working exactly as Congress intended it to," said Ernie Csiszar, PCI president and chief executive officer.
"It shows that the industry can handle some exposure to terrorism risk, but that without a federal backstop, premiums will rise and take-up rates will dwindle, leaving more Americans uninsured and unprotected from the risks of terrorism," Mr. Csiszar said.
Mr. Csiszar noted comments of House Financial Services Committee Chairman Michael Oxley, R-Ohio, at PCI's annual meeting this week.
Rep. Oxley said then there could be a "travesty of enormous proportions to our economy" if some form of TRIA is not extended.
The RAND report says TRIA creates an effective mechanism for sharing the financial risk that businesses face from terrorism, Mr. Csiszar said.
The report says that, in considering whether to extend or modifying TRIA, Congress should give a higher priority to concerns over the uninsured than concerns about possible federal payments to insurance companies.
According to RAND, the first is of deeper importance because uninsured losses would be common in terrorist scenarios, while taxpayer funds would probably not be needed to support the terrorism insurance system.
The study estimates the pattern of payments for insured losses that might be triggered under TRIA in the event of three kinds of terrorist attacks: a hijacked aircraft hitting a major office building; anthrax being released inside a major office building; and an outdoor anthrax release in an urban area.
Under each of the scenarios RAND examined, TRIA-covered financial losses would not be large enough to trigger federal subsidies to insurers. Since less than half of businesses currently buy terrorism insurance policies, losses to businesses without the coverage don't cost insurance companies anything, the report said.
The study was the product of the RAND Center for Terrorism Risk Management Policy, which includes the RAND Institute for Civil Justice in Santa Monica, Calif., Risk Management Solutions catastrophe modeling firm in Newark, Calif. and RAND Infrastructure Safety and Environment in Arlington, Va.
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