The U.S. Treasury Department is not collecting enough data from insurers to determine whether the goals of the federal government's terrorism insurance backstop program are being met, according to a report issued Wednesday by the Government Accountability Office.
In “Terrorism Insurance: Treasury Needs to Collect and Analyze Data to Better Understand Fiscal Exposure and Clarify Guidance,” the GAO noted that Congress passed the Terrorism Risk Insurance Act of 2002, which created the program, and reauthorizations of the program “to help ensure the availability and affordability of insurance for terrorism risk and provide a transitional period in which the private insurance market could determine how to model and price terrorism risk.”
But the Treasury Department has not collected “comprehensive data” directly from insurers, the GAO said, adding that obtaining comprehensive data is necessary to thoroughly analyze the market.
The report recommends that the secretary of the Treasury take three specific actions to correct the situation:
• Treasury should collect the data needed to analyze the terrorism insurance market. Types of data could include terrorism coverage by line of insurance and terrorism insurance premiums earned. “In taking this action, Treasury should determine whether any additional authority is needed and, if so, work with Congress to ensure it has the authority needed to carry out this action,” said the report.
• Treasury needs to periodically assess data collected relative to terrorism insurance, “including analyzing differences in terrorism insurance by company size, geography, or industry sector; conducting hypothetical illustrative examples to help estimate the potential magnitude of fiscal exposure; and analyzing how changing program parameters may impact the market and fiscal exposure.”
• Treasury should gather additional information from insurers relative to the definition of cyber terrorism in policies and clarify whether losses that might result from cyber terrorism are covered under the federal program.
The program is slated to expire Dec. 31 unless reauthorized by Congress. The Senate Banking, Housing and Urban Affairs Committee has approved a bill that would extend a modified program for seven years, and extension legislation is expected in the House of Representatives by the end of June.