Speak Truth To Power

Speak Truth To Power

This country would be a lot better off if we had a Risk Management Czar–someone to identify exposures, put loss control measures in place, and make sure the worst-case scenarios are insured. Perhaps then we would be better prepared for another natural disaster such as Hurricane Katrina or man-made catastrophe like the Sept. 11, 2001 terrorist attack.

Some will claim that we already have a risk manager–the head of the Department of Homeland Security. However, what I've seen out of Washington in terms of disaster mitigation, catastrophe response and the debate over terrorism insurance leaves me longing for a true federal risk manager.

The situation in New Orleans never should have been this bad. Any risk manager worth their salt would have insisted on fortifying the levees to withstand a Category 5 storm, or at least had proactive evacuation and disaster recovery plans ready to roll.

A responsible risk manager also would have put a more effective flood insurance program in place. While the feds made the right call to create the National Flood Insurance Program, it was seriously flawed as too many people who should have bought the coverage passed on the opportunity.

Instead, our government officials are reduced to desperate measures, proposing retroactive flood coverage (which would discourage anyone from ever buying the insurance again) or hassling private carriers to pay claims on risks they never covered.

Our government's response to terrorism has been even worse. The Department of Homeland Security is another bloated, ineffective government bureaucracy. While we are given vague, color-coded warnings, with no specific calls to action, airport security remains spotty, cargo ships and nuclear facilities are extremely vulnerable, and our borders have gaping holes.

The one sensible step taken by the government–although not until a year after the Sept. 11 attacks–was to pass the Terrorism Risk Insurance Act.

Insurers did not get nearly enough credit for helping the economy recover and individual survivors get their lives and businesses back together following the World Trade Center's destruction.

Without TRIA's federal reinsurance backup, the market for terrorism coverage would have collapsed. Those with no choice but to write the exposure–such as workers' compensation carriers–either would have exited high-risk areas, sent premiums soaring, or run the risk of financial ruin by staying in the market.

Despite these facts, Congress is dragging its feet on extending this vital risk management program, which sunsets at year's end. This week, a trial balloon was floated about a "silo" approach, with the level of federal support depending on the line of business, but action is unlikely until the 11th hour. Complicating matters is an ignorant suspicion that we are somehow "bailing out" private carriers with TRIA.

The truth is we need a functioning, financially secure insurance industry if we expect to recover from another major terrorist attack–or another monumental natural disaster, for that matter.

The problem is the government is so skeptical about the insurance industry's value, that whatever Congress hears about TRIA from carriers and producers is viewed as self-serving propaganda. That's why risk managers need to lobby Washington in defense of TRIA.

Call your representatives in the House and Senate. Remind them you are a consumer, and explain why TRIA is so critical to your business and the overall economy. Warn them about the risks of going bare–a fate endured by far too many devastated people in the Gulf.

Sam Friedman is NU's Editor-In-Chief. He may be reached at sfriedman@nuco.com.

"The problem is that the government is so suspicious of the insurance industry, whatever Congress hears about TRIA from carriers and producers is viewed as self-serving propaganda."