TERRORISM INSURANCE - November 29, 2013 Roundtable Weekly

TRIA Panel Discussion Features Key Lawmakers, Academics, Policyholders   

The future of a federal program to ensure the availability of terrorism insurance to commercial policyholders — as well as the U.S. economy’s resilience in the face of potentially catastrophic attacks — was the focus of a “TRIA Triage” panel discussion in Washington on Tuesday that featured lawmakers, academics, insurance industry officials, experts representing terrorism insurance consumers (i.e. policyholders), and other stakeholders. The Terrorism Risk Insurance Act (TRIA) is scheduled to sunset on Dec. 31, 2014. 

Rep. Randy Neugebauer (R-TX) TRIA Triage

Rep. Randy Neugebauer (R-TX), above, who chairs the House Financial Services Subcommittee on Housing and Insurance, held a hearing last week on TRIA.

Rep. Grimm TRIA Triage

Rep. Michael Grimm (R-NY), above, noted the need for terrorism insurance coverage at facilities across the country such as hospitals, theme parks, power plants, and universities

Tuesday’s panel — which was hosted by National Journal and underwritten by Zurich Insurance Group — featured Reps. Michael Grimm (R-NY) and Randy Neugebauer (R-TX); Roundtable President and CEO Jeff DeBoer, who spoke on behalf of property owners and other policyholders; American Insurance Association (AIA) President Leigh Ann Pusey; University of Maryland law professor Robert Rhee (author of the Sept. 10 CATO article, The Terrorism Risk Insurance Act: Time to End the Corporate Welfare);; Insurance Information Institute (III) Senior VP and Chief Economist Steven Weisbart; and Steve Ellis, vice president at Taxpayers for Common Sense. The discussion was moderated by National Journal Managing Editor Kristin Roberts.

Issues raised at this week’s forum were similar to those discussed at other such gatherings over the past year — including congressional hearings on Sept. 19, Sept 25 and Nov. 13; a briefing on Capitol Hill by Marsh and the Coalition to Insure Against Terrorism [CIAT] in April; and a discussion about TRIA’ s looming expiration at the recent fall meeting of The Real Estate Roundtable. 

Key issues in the ongoing TRIA reauthorization debate include:  

were TRIA to expire, would commercial policyholders be able to secure adequate levels of terrorism insurance? 

  without TRIA, would private markets be able to provide terrorism coverage at the levels necessary to sustain the U.S. economy — how can we expect a substantial private market capacity to arise?  

  could TRIA somehow be crowding out the private market, when all evidence suggests that the insurance marketplace is incapable or unwilling to take on a substantial portion of the risk of providing coverage for acts of terrorism?  

  although taxpayers are better served if TRIA remains in effect, how can the current federal plan be scaled back to further protect the taxpayer — or, how can insurers and policyholders be required to have more “skin in the game”? 

Grimm, who participated in a TRIA discussion at the Fall 2013 Roundtable Meeting in late October, said Tuesday that he supports permanent reauthorization of the Terrorism Risk Insurance Act (TRIA), but believes his proposal for a 5-year extension is more realistic. He added that the issue has become “like a baby to me,” one “that needs to be nourished and taken care of.”

He also emphasized that the issue has widespread importance for the entire country, noting the need for terrorism insurance coverage at facilities such as hospitals, theme parks, power plants, and universities. And while he expressed his commitment to free-market principles, he spoke of the “staggering” and unlimited workers compensation risks involved in a potential terrorist strike, saying this facet of the discussion needs more attention.  

“I absolutely believe in a free market. But I would posit it’s actually not a free market, because individual states mandate that the underwriter of that workers comp cover terrorism,” Grimm explained. “And I believe that many of those companies that underwrite that risk would not do so freely [without TRIA] — again, because it’s as close to an unlimited risk as you can get.”

audience TRIA Triage

The “TRIA Triage” panel discussion in Washington  featured lawmakers, academics, insurance industry officials, experts representing terrorism insurance consumers (i.e. policyholders), and other stakeholders. 

Rep. Grimm indicated that he expects to see TRIA reauthorization marked up by the first quarter of 2014. However, Chairman Neugebauer emphasized he would like to cut the government’s involvement in the private insurance market (National Journal, Nov. 21) — echoing comments at his subcommittee’s TRIA hearing last week that there needs to be more industry “skin in the game” as the price of reauthorizing TRIA.

Grimm predicted there would likely be changes to the program along these lines — perhaps an increase in the industry-wide $100 million trigger or modifications to the recoupment process by which insurers and policyholders must re-pay the federal government for any outlays — but added that the reforms will likely “be reasonable and they’ll be changes the industry can live with” (Bloomberg Government, Nov. 19).

Pusey, of the AIA, said many insurers who currently provide terrorism insurance “are already stretching themselves,” and could face solvency issues if TRIA reforms go too far in shifting costs to insurers, prompting them to drop such coverage. “If TRIA as a mechanism stretches them too far, they won’t retract.... they [won’t be able to] write it,” she said.   

Pusey also emphasized TRIA’s role in protecting the U.S. economy from catastrophic shocks, saying “the economy still needs it” 12 years after TRIA’s first enactment (in 2002).  

Jeff DeBoer TRIA_Triage_294

Roundtable President & CEO Jeffrey DeBoer, left, spoke on behalf of the policyholder community, noting the possibility of devastating gaps in coverage, which would force existing commercial real estate loans into technical default and make it virtually impossible for property owners to obtain credit.

On the subject of taxpayer exposure, House Financial Services Ranking Democrat Maxine Waters (D-CA) said at a September hearing that, “By requiring private insurers to offer terrorism coverage, TRIA actually reduces taxpayer exposure because it keeps most of the terrorism risk with the private sector. Without affordable terrorism insurance, many buildings, schools, and venues would remain uninsured against terrorist attacks, meaning that the government likely would pick up 100 percent of the tab for catastrophic losses” (Roundtable Weekly, Sept. 20).

DeBoer, who spoke on behalf of the policyholder community, explained that although TRIA was originally intended to be a temporary measure — a bridge to a time when reinsurers returned to the market place — insurers remain unable to effectively quantify and price the unique and catastrophic risks associated with terrorism.

He also explained that amid uncertainty over the law’s future, policyholders facing renewal are being advised by their insurers to expect conditional terrorism exclusions in coming months. This raises the possibility of devastating gaps in coverage, which would force existing commercial real estate loans into technical default and make it virtually impossible for property owners to obtain credit (since most loan covenants require terrorism coverage on the underlying collateral).   

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