WASHINGTON (Sept. 27, 2006)—Congress needs to adopt a long-term private/public terrorism risk insurance program, said a National Association of Mutual Insurance Companies (NAMIC) witness in testimony before two House Financial Services Subcommittees today.
Warren Heck, CPCU, chairman and CEO of Greater New York Mutual Insurance Company in New York, NY, testified today before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises and the Subcommittee on Oversight and Investigations hearing on “Protecting Americans from Catastrophic Terrorism Risk.”
Heck told the Subcommittees that TRIA played a major role in preventing an economic catastrophe and helping to get the country back on its feet economically after 9/11, and that the Terrorism Risk Extension Act (TRIEA) has prevented a significant tightening and possible collapse of the terrorism risk insurance market.
However, Heck warned that, “TRIEA expires on December 31, 2007, and I am deeply concerned that if the 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 will be unable to afford the coverage that is available.”
Heck’s company has had years of frontline experience with terrorism risk. Greater New York Mutual is the fourth largest writer of Commercial Multi Peril business in New York State and the fifth largest writer of that business in the state of New Jersey, the largest writer of co-op apartment houses in New York City, and the leading writer of apartment buildings in the state.
“Without the passage of TRIA and TRIEA, our company could not have kept its market open in the same way in New York City, and retained the insurance capacity needed to write new business and grow its direct written premium,” said Heck.
“My experience tells me that without a federal program, we would find ourselves in the immediate post-9/11 situation: Insurers will exclude terrorism unless required to offer it by the states. If permitted to do so, companies that did not withdraw entirely from the market would raise their rates to levels so high that they would inhibit development and economic growth.
Moreover, there is simply no reason to believe that the capital markets will replace the missing insurance capacity or that TRIEA has crowded out private market capacity. The capital markets have taken their cue from the reinsurance market. There have been very few terrorism catastrophe bonds issued and Wall Street has no apparent intention to move into this market in any significant way. Additionally, there is no capital market appetite whatsoever for bonds for NBCR events,” said Heck.
Heck emphasized that a well designed long-term private/public terrorism insurance plan will “both reduce the federal government’s exposure and provide for an orderly processing of claims. The result would be a speedier economic recovery for both the area that has been attacked and for the economy as a whole.”
Heck said that the insurance industry has been working to devise a long-term program for congressional consideration that would maximize private sector participation without threatening the economic viability of the industry. Key elements of the plan will include:
Since 2004, Heck has chaired NAMIC’s TRIA Task Force, which developed the association’s “Statement of Principles on Terrorism Risk Insurance.” The Statement can be accessed at NAMIC Online.
Heck’s testimony can be accessed at NAMIC Online.
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