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NAMIC Calls For Federal Terrorism Backstop With Broad Insurer Risk Sharing

INDIANAPOLIS (March 29, 2006)- A long-term solution for managing terrorism risk must include a permanent role for the federal government and be structured to encourage broad participation by small and medium sized companies, a spokesperson for the National Association of Mutual Insurance Companies (NAMIC) told a special meeting of state insurance regulators today.

Testifying before the NAIC Terrorism Insurance Implementation (C) Working Group NAMIC Public Policy Director Robert Detlefsen said that "[b]ecause the frequency and severity of terrorist attacks is less predictable than natural disasters, the need to avoid overexposure to this extraordinarily capricious risk is especially great."

"Establishing the conditions under which many different insurers are capable of bearing a portion of terrorism risk should be a central goal of any program to ensure the long-term availability and affordability of terrorism insurance."

He dismissed critics of TRIA who argue that markets are capable of absorbing terrorism losses, and who criticize insurers for not creating a comprehensive plan to generate terrorism capacity.

"Markets behave spontaneously according to the needs and desires of self-interested actors," he said. [P]lanning is what governments do when individual sellers of goods and services have no economic incentive to provide what buyers want." Detlefsen added that the instruction from policymakers to insurers to design a capacity program "is proof that market forces alone are inadequate to the task at hand."

He cited the lack of competition among reinsurers to aggressively seek opportunities to write terrorism reinsurance coverage as TRIA was nearing its expiration date in 2005 as "a market-driven decision."

Detlefsen cautioned policymakers to "be sensitive to the fact that the threat of insolvency-or a rating agency downgrade-would inexorably force these insurers from the terrorism insurance market."

"Government reinsurance.should feature insurer deductibles and an event trigger set at levels that would not adversely affect small and medium sized insurers," Detlefsen testified, suggesting that "because there are limits to the amount of loss exposure that even very large insurers can absorb, no one should assume that large carriers would fill the void created by the smaller companies' exit."

Detlefsen's complete statement which includes a NAMIC Statement of Principles regarding terrorism reinsurance can be found at NAMIC Online.

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For further information, contact
Robert Detlefsen, Ph.D.
(317) 875-5250 Tel
(317) 879-8408 Fax
rdetlefsen@namic.org