GAO Weighs In On Terror Cover Availability

WASHINGTON–The Government Accountability Office today released a study confirming the concerns of House Democrats that commercial policyholders in high-density areas such as New York are having difficulty obtaining large amounts of terrorism risk insurance from one underwriter.

But, at the same time, the GAO said it found the policy options proposed by Democrats to solve the problems create other problems.

Specifically, the report said the GAO found that the analysts and participants it contacted found “advantages and disadvantages of various policy proposals that have been made to increase terrorism insurance coverage.”

And, the study said, as a result of the legislation, “commercial property terrorism insurance coverage appears to be available nationwide at rates policyholders view as reasonable.”

The GAO also said in the study that insurance industry participants and analysts had no consensus on whether the current Terrorism Risk Insurance Act should be modified or additional actions taken to increase the availability of terrorism insurance coverage.

The Terrorism Risk Insurance Program Reauthorization Act of 2007 extended the program through 2014 and added coverage of domestic terrorism events.

The study was conducted by the GAO as part of a compromise in legislation passed last December by Congress that eliminated a provision in legislation passed by the House establishing a so-called “reset” provision but calling for further study of the issue.

The reset provision called for lowering deductibles for high-density areas that were subject to prior terrorist attacks or have high potential to be the subject of a subsequent terrorism attack.

It was strongly pushed by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Rep. Gary Ackerman, D-N.Y., who represents the areas in lower Manhattan that were the subject of the Sept. 11, 2001 terrorism attack.

But it was rejected out of hand by the Senate as too costly despite the intense efforts of the House Democratic leadership, led by Rep. Frank and Rep. Ackerman.

In the study released today, the GAO effectively agreed with the Senate members, led By Sen. Richard Shelby, R-Ala., who opposed the provision.

“While the proposal would substantially reduce the TRIA deductible, officials we contacted said that it may not make insurers willing to offer more terrorism insurance coverage in the wake of a future terrorist attack that caused substantial insured losses,” the GAO said. “This proposal could also increase federal exposure to losses caused by terrorism.”