Strange Bedfellows

I used to think that extension of the Terrorism Risk Insurance Act was a no-brainer, but I forgot that brainpower is often in short supply in Congress.

The clock is ticking, as TRIA expires at year's end. Without TRIA, the industry would be totally on its own–in the same boat with many of its clients. With no government backup in place, affordability and availability of terrorism coverage will suffer, and many carriers that do write the exposure (willingly or by law) will face ruin should the worst happen.

Is this what Washington wants? Do they really believe TRIA is some sort of scam by an industry that can handle terrorism on its own? Or is this simply another case–as with Social Security, the budget deficit or our energy crisis–of the federal government turning a blind eye to the magnitude of the potential crisis if they fail to take action?

The bottom line is that unless Congress extends TRIA in some substantial way–not letting it sunset or gutting it in renewal–the survival of the insurance industry, and our economy, will be at serious risk.

Some critics claim TRIA is just a bailout. That's nonsense. Even under current law, the industry faces tens of billions in potential claims beyond any TRIA reinsurance. Renewal would simply recognize the reality that no one carrier–or all insurers put together–can face this overwhelming exposure without government support.

To leave the industry bare and abandon policyholders to the not-so-tender mercies of the free market when it comes to terrorism would be criminal. Does Washington seriously believe the economy can function without terrorism coverage, or that there would be no consequences if dozens of insurers were driven out of business by terrorism claims?

Where would the economy be if there hadn't been insurance coverage in place on Sept. 11, and who is to say that horrible day is the worst attack we could expect? The sad truth is we could face even more devastating losses down the road.

The White House only grudgingly concedes that TRIA renewal is needed–but with the clear understanding it will provide less coverage than it does now. Meanwhile, Congress is nowhere near a consensus on TRIA's future, making renewal problematic at best.

Some have suggested charging insurers actuarially sound rates for terrorism coverage. That's a great idea, and many industry leaders would second the motion.

Indeed, for the long term, Washington should follow the lead of its chief ally in the war on terrorism–the United Kingdom–by establishing a permanent government facility to reinsure private carriers, for a reasonable price. That would make a lot of sense–which just might disqualify it in the eyes of this clueless Congress.

It's funny, but for an industry so heavily Republican in its leanings, the Republican-controlled White House and Congress is oddly unsympathetic to its cries for help on TRIA. To their chagrin, insurers might have to depend on their one-time punching bag, Sen. Hillary Clinton, D-N.Y., to defend their cause. She, after all, rightfully called TRIA extension a matter of national security.

At times like this, the industry cannot afford to pick and choose its friends. They should welcome Sen. Clinton on their team and ride her to victory on TRIA if they can. The Democrats have much to gain by latching onto TRIA to show they are as serious as President Bush and friends in fighting terrorism.

They say politics makes strange bedfellows, but this one would take the cake!

Sam Friedman

Editor-In-Chief

Quotebox, with Sam's mug:

"Long-term, establishing a permanent government facility to reinsure private carriers for terrorism for a reasonable price would make a lot of sense."