Property/casualty insurance groups are welcoming a new government report they say demonstrates the need for an extension of the federal government's terrorism insurance backstop program.
The President's Working Group on Financial Markets issued the report on Thursday. Among other things, “The Long-Term Availability and Affordability of Insurance for Terrorism Risk” said that based on comments the working group received, without the federal program, “terrorism risk insurance, particularly for high-value exposures, may become a smaller, specialty market if such coverage remains available at all.”
The program, which was created by the Terrorism Risk Insurance Act of 2002, is slated to end on Dec. 31 unless it is reauthorized by Congress. A bipartisan group of senators introduced legislation that would reauthorize the program for seven years but require insurers to bear more risk than they do under the current program.
Property/casualty insurance groups hailed the report.
“PCI is pleased that a majority of the key findings in the PWG report support the views of PCI and its member companies,” said Robert Gordon, the Property Casualty Insurers Association of America's Washington-based senior vice president, policy development and research, in a statement.
“A long-term reauthorization of TRIA is needed to provide affordable terrorism insurance, and the private market does not have the capacity to provide reinsurance for terrorism risk to the extent currently provided by TRIA,” said Mr. Gordon, who wrote the first draft of TRIA as a congressional staffer. ”As the uncertainty as to whether TRIA will be renewed grows, the market continues to tighten. However, it is important to note that increasing the industry share through the coshare, deductible or trigger will affect the availability and affordability of terrorism insurance for consumers.”
“The report confirms that the private market alone does not have the capacity to provide the levels of terrorism risk coverage currently produced under TRIA,” said Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Association, in a statement.
“While we are encouraged by the report, we are concerned with any effort to increase insurer retentions, as this could lead to decreased market capacity,” she added. “The private sector has not developed the financial ability and the significant levels of capital to create the necessary capacity to cover large-scale losses that result from a terrorist attack.”
A policyholder group also welcomed the report.
“The report makes clear that for over a decade, TRIA has had tremendous success in not only restoring economic stability but in undermining the goals of terrorists by ensuring resiliency in the unfortunate event of another attack,” Martin DePoy, steering committee coordinator of the Washington-based business group Coalition to Insure Against Terrorism, said in a statement.
“Without TRIA, the private market lacks the capacity to provide reinsurance for terrorism risk to the extent currently provided. Furthermore, available coverage would likely be limited and more costly,” Mr. DePoy said.