WASHINGTON–The Council of Insurance Agents and Brokers has written federal officials examining the terrorism insurance marketplace that any long-term solution to the problem of underwriting terrorism risk must involve the U.S. government.
In a letter to the Treasury Department, the CIAB agued that, given the uncertain nature of terrorism in the United States and the lack of adequate modeling, insurers are incapable of determining accurate rates for coverage and will ultimately need some form of federal assistance.
The Treasury Department is examining the terrorism risk in an effort to evaluate the potential actions that may need to be taken when the Terrorism Risk Insurance Act expires at the end of 2007.
CIAB did not promote any specific proposals in its letter, focusing instead on what the overall goal should be for policymakers involved with the terrorism risk issue.
As lawmakers and those in the Bush administration work toward a long-term solution for the problem, the CIAB advocated a focus on ensuring the system, "results in affordability, increased availability and increased certainty in the terrorism insurance marketplace."
In its letter, the CIAB said that without government action, the conditions when TRIA expires in 2007 will be a more drastic version of those in late 2005, when the program faced its original expiration before a last-minute extension was passed.
"For medium and large insureds with little or no exposure–i.e., businesses in low risk industries located away from high risk areas–property coverage for terrorism was generally available at reasonable prices," the group said in the letter. "In contrast, insureds in areas with high concentrations of risk (urban areas), in high-risk industries or properties perceived as 'targets,' capacity was low and prices were high. This is also true of large insureds seeking large amounts of terror coverage."
Additionally, the CIAB noted, any efforts made to mitigate the damages from future terrorism attacks may not prove effective.
"Although mitigation efforts may be helpful, there are certain events for which it is difficult, if not impossible to prepare," the group said.
"Indeed, as the events of 9/11 proved, policyholders are often at the mercy of government, law enforcement and others to decrease risk of terrorism. No mitigation efforts could have been employed by the owners of the World Trade Center to decrease the likelihood of planes being flown into buildings," said CIAB.
As a result of this uncertainty, the group argued that it is vital that any future program designed to provide a long-term system for covering terrorism risk include the federal government.
"TRIA has provided stability to a volatile marketplace by providing insurers with a federal backstop so they can make terrorism insurance available to consumers," the CIAB said. "It is clear, however, that the private sector currently does not have the capacity to cover terror losses absent the federal backstop and is not likely to have that capacity when TRIA expires on Dec. 31, 2007. Thus we believe that any long-term solution to the issue must include federal government involvement."
CIAB is the latest insurance industry group to release comments on the TRIA issue. Earlier this week the Independent Insurance Agents and Brokers of America warned of severe economic consequences if TRIA expires.
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