The federal Terrorism Risk Insurance Program has been an unqualified success in protecting the economy and fostering economic growth at virtually no cost to the taxpayers and should be swiftly renewed, the National Association of Mutual Insurance Companies said today.
Testifying before the Senate Banking Committee on behalf of NAMIC, Warren Heck, chairman and CEO of the Greater New York Mutual Insurance Company, told lawmakers that the program has fostered a strong market for affordable terrorism insurance coverage vital to development.
“Coverage is available and affordable, a limited amount of reinsurance is available, and take-up rates average over 60 percent across the country,” Heck said, adding that “there seems to be few, if any, demonstrable market failures or problems” for terrorism coverage.
The robust market, he said, is due entirely to the Terrorism Risk Insurance Act, which was enacted in the wake of the 9/11 terrorist attacks and created the program in which the federal government absorbs some catastrophic losses in the immediate term and is paid back over time.
The Terrorism Risk Insurance Program, Heck explained, works as a “shock absorber for the U.S. economy to reduce the financial impact of a catastrophic attack.” Under the program, an insurer’s immediate losses from a major terrorist attack are capped for the immediate term and backed by the federal government. Over time, any funds used to pay claims for a company could be recouped through fees and assessments of the companies.
“Rather than transferring some of those concentrated losses directly to the federal government, TRIA transfers it through the government and back to the private-sector insurers and their commercial policyholders,” Heck said. “We see this as taxpayer protection at its best.”
The program is currently set to expire at the end of this year, and NAMIC has long been advocating for it to be extended for as long a term as is possible. Some in Congress have suggested changing the parameters of the program, such as by increasing the “trigger” level at which the federal government would become involved, but Heck cautioned that such changes would impose a significant burden on small and mid-sized companies that could induce them to leave the program and stop offering terrorism coverage.
“This type of change will cause market participants to exit just as they did in New York City after 9/11, thereby reducing available capacity and concentrating the risk with fewer insurance carriers,” he said. “Any effective terrorism loss management plan depends on participation by insurers of all sizes and structures.”
Director, Federal Public Affairs