WASHINGTON (March 2, 2007) — Business owners across the country could find themselves in dire straits if the Terrorism Risk Insurance Act is allowed to expire this year. That’s the message an insurance industry executive and representative for the National Association of Mutual Insurance Companies (NAMIC) will deliver to members of Congress at a hearing in New York City Monday.
Warren Heck, CEO of the Greater New York Mutual Insurance Company, will testify before the House Committee on Financial Services’ Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises as it considers the need to extend TRIA beyond its December expiration date.
“I am deeply concerned that if Congress does not adopt a long-term private/public terrorism risk insurance program, many of our citizens who need terrorism coverage to operate their businesses across the nation will be either unable to get insurance or unable to afford the coverage that is available,” Heck says in prepared remarks.
TRIA was enacted in the wake of the tragic events of Sept. 11. It created a mechanism under which the federal government would provide a federal reinsurance backstop to commercial insurers in the event of another foreign-initiated terrorism attack.
Shortly after the attacks of Sept. 11, most primary insurers began to non-renew their large commercial property and workers’ compensation, or reduce their limits of coverage to levels below what was needed by the business community. It lead to the postponement of many construction projects and significant increases in pricing of commercial multi-peril insurance.
“My experience tells me that without a federal program we would again find ourselves in the immediate post-9/11 situation, with insurers excluding terrorism, unless required to offer it by the states. Insurers forced to write such coverage would have no choice but to charge very high rates, thereby inhibiting development and economic growth.”
Just days before TRIA was set to expire in December 2005, - Congress voted to extend it for two more years, albeit with scaled-back coverage. For example, the extension bill does not include coverage for non-conventional attacks, such as nuclear, biological, chemical or radiological. The bill also increased the industry’s deductible from 17.5 percent in 2006 to 20 percent in 2007. And, the event trigger was raised to $100 million for 2007.
NAMIC is working with lawmakers and other members of the property/casualty industry to create a long-term public/private partnership on terrorism coverage when the current legislation expires Dec. 31. As part of the effort, NAMIC is seeking to ensure that a permanent event trigger should be set at a level that will continue to encourage participation by small- and medium-sized insurers – which comprise the bulk of NAMIC’s membership. These companies provide marketplace competition, thereby lowering prices for policyholders.
“Too high a trigger would drive them from the market because reinsurance costs would be too high, making primary coverage unaffordable,” Heck says. “I think a $50 million trigger would be likely to assure the continued involvement of these insurers in the sale of terrorism risk insurance.”
NAMIC supports a long-term program to avoid the kind of disruption that occurred when TRIA was scheduled to expire in 2005, with companies scurrying to address the uncertainty, often asking state officials to allow them to provide exclusions in future contracts or possibly withdrawing from certain markets or restrict coverage.
“We look forward to working with Subcommittee Chairman [Paul E.] Kanjorski and Ranking Member [Deborah] Pryce on creating a long-term solution to produce market stability,” said Marliss Browder, NAMIC senior federal affairs director.
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