A report suggesting that government reinsurance for terrorism should perhaps be limited to nuclear, biological, chemical and radiological attacks fails to recognize the bigger problem in covering this unpredictable and potentially overwhelming exposure, industry officials charged.
The Property Casualty Insurers Association of America praised the Government Accountability Office study for reinforcing the "growing bipartisan consensus that terrorist attacks against the United States are uninsurable without a federal government role."
However, PCI officials said they "disagree with any suggestion that Congress should limit government support only" to the case of NBCR attacks.
"Instead, PCI urges Congress to replace the Terrorism Risk Insurance Act with a long-term, market-based solution to terrorism risk insurance that does not arbitrarily pick winners and losers based on the type of attack, as an NBCR-only approach would do," PCI said.
"The real issue is terrorism itself and its uninsurability, not the specific weapon a terrorist may decide to use," added Ben McKay, PCI's senior vice president for federal affairs.
A group representing policyholders agreed, saying the report "underscored the necessity for creating a long-term federal terrorism risk insurance backstop."
"We believe the broader message that can be taken from the GAO study on NBCR risk is that there will be no meaningful coverage for any terrorism risk without federal involvement–and a comprehensive, long-term solution to this issue is essential," according to Martin DePoy, who chairs the steering committee for the Coalition to Insure Against Terrorism.
CIAT includes a number of commercial real estate developers and managers. Their comments were made in the wake of a GAO finding that, "while the condition of insurability or uninsurability is not an absolute, NBCR risks generally fail to meet most or all of these principles of an insurable risk."
"Indeed, insurance experts GAO interviewed said that the potential severity of NBCR risks alone could diminish the willingness of some insurers to insure NBCR risks," the report concluded.
The GAO's findings, released on Sept. 26, were first disclosed by the National Underwriter Online News Service before the report was officially released.
The American Insurance Association said the GAO report "confirms that NBCR risks are particularly and wholly uninsurable" in the private insurance market.
"The report also confirms that there is no appetite in the private sector capital markets (including the private reinsurance market) for NBCR risks, and it does not appear that such an appetite would develop in the absence of a federal terrorism risk insurance mechanism," the AIA added.
Amplifying his comments, the CIAT's Mr. DePoy added that "while the GAO report focused only on NBCR risk, the plain and simple fact is these same four issues apply to all terrorism risk insurance assessment–no matter whether the attack comes as a cloud of Anthrax spores or a hurtling airliner carrying 10,000 gallons of aviation fuel."
He said that "we believe the broader message that can be taken from the GAO study on NBCR risk is there will be no meaningful coverage for any terrorism risk without federal involvement–and a comprehensive, long-term solution to this issue is essential."
Mr. DePoy noted that CIAT is encouraged by the fact that Congressional hearings on this subject are being held. "CIAT and our coalition's 80 members of the policyholder community are anxious to participate productively in this process."
The GAO report added, "Despite the attempts by private insurers to exclude NBCR risks, the marketplace remains significantly vulnerable to a catastrophic NBCR event for the insurance lines of workers' compensation, health, life and fire (following property coverage in some states, where NBCR losses cannot be legally or practically excluded)."
The GAO report said that insurers have responded to the risks of catastrophic terrorism by trying to exclude NBCR coverage. "The success of such exclusions for NBCR events has not been tested, and the likely result of any NBCR attack would mean an avalanche of litigation on the issue," the summary of the GAO report said.
The report added that "most consumers may be unaware that they have little or no property-casualty coverage for these risks, and what coverage exists may be further narrowed if TRIA were to expire."
A group led by the Real Estate Roundtable is proposing a program that calls for the U.S. government to use premiums it would collect from an extension of TRIA to fund a pool structured as a mutual insurance company to provide a government backstop until the pool grew to $30 billion.
During the period the fund is building up, insurers would also be subject to deductibles and retention levels similar to those mandated by the current program.
The GAO report was sought last year by Rep. Mike Oxley, R-Ohio, chairman of the full committee, after TRIA legislation was extended in a scaled-down format with few of the provisions that a House version of the bill contained.
The activity is taking place in anticipation that a report being prepared by the President's Working Group on Financial Markets concerning the potential viability of a private market for terrorism insurance and reinsurance will say such a market is potentially viable, and that the private market should be allowed to function when the current program ends.
The report was expected to be released by Sept. 30, after this edition went to press–as mandated by a provision of the law passed by Congress last December that extended the scaled-down version of the original TRIA program for two years.
Check NU's Online News Service for the latest developments at www.propertyandcasualtyinsurancenews.com.
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