The terrorism risk insurance act: let it live: extending TRIA for another two years at least is essential for property/casualty insurers

There is no question that TRIA bas helped stabilize the terrorism insurance marketplace. Since TRIA's enactment, affordable terrorism risk insurance has been more readily available to commercial policyholders, as insurers have passed on the benefit of the backstop to consumers.

This market-stabilizing effect enabled billions of dollars of business transactions previously stalled to go forward without threatening the solvency of the commercial enterprises involved or their insurers.

Because the United States continues to be on high alert for the constant and very real threat of further attacks, catastrophic terrorism remains an uninsurable risk in the traditional insurance marketplace.

To date, terrorism risk cannot be modeled or predicted with any accuracy.

The possibility of nuclear, biological, chemical, or radiological attacks reinforces the conclusion that catastrophic terrorism risks are uninsurable. The anthrax attacks perpetrated through the U.S. postal system, (including the U.S. Senate's own mail facility), even though limited in scope and severity, only serve to underscore the random quality and myriad potential consequences associated with such events.

Because of these characteristics, terrorism risk defies normal underwriting and rating principles, effectively limiting the ability of property-casualty insurers to advance a private mechanism for that risk.

A federal backstop will also help mitigate the continuing absence of a viable reinsurance market. During the policy renewal period following Sept. 11, 2001, reinsurers largely declined to provide capacity against the risk of foreign terrorism in the United States.

Reinsurers continue to consider terrorism risk uninsurable in the traditional sense, and are not expected to provide the market with sufficient capacity when TRIA expires.

The devastating results of the Sept. 11 attack illustrate the significant threat that terrorism poses to the security of the nation's fiscal health. Businesses--particularly those considered critical to the nation's infrastructure--must be ever mindful of the devastating impact that a terrorist attack can have on their financial condition and prospects for survival, as well as the catastrophic ripple effect that cascading business failures could have on the economy. This is especially true of the U.S. property-casualty insurance industry.

In short, without a robust and financially sound property-casualty insurance industry, none of the critical infrastructure industries--which look to their insurers in the event of a loss to make them "whole" again--would be able to recover economically from a major terrorist attack, or for that matter, from any other type of catastrophe. One terrorist attack may very well be enough to render the insurance industry unable to absorb a subsequent catastrophic loss of any kind.

TRIA's public-private partnership is working to stabilize the commercial insurance markets that underpin our entrepreneurial, free-market economy. However, because war and terrorism are societal risks, they remain uninsurable. The aim of a terrorist is not to hurt the insured, but rather to attack the United States.

To ask the insurance industry to absorb loss resulting from an attack against our nation (one directed at the United States to alter its behavior) places the U.S. economy and our national security at great risk. Without a risk-spreading mechanism, the right attack could very well bring the insurance industry to its knees and significantly destabilize our economic infrastructure, achieving a primary aim of the terrorist. We simply cannot afford to let TRIA expire and leave this important matter to chance. A two-year extension is critical.

JOHN J. DEGNAN is vice chairman and chief administrative officer of The Chubb Corp. His statement was delivered to the Senate Committee on Banking, Housing and Urban Affairs on behalf or a coalition of property/casualty insurance trade groups. The statement was edited to fit the page.

COPYRIGHT 2004 Axon Group
COPYRIGHT 2004 Gale Group