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OPINION: Terror backstop born of necessity


THE CHAOS AND UNCERTAINTY that followed the terrorist attacks of Sept. 11, 2001, affected virtually every aspect of American life. Risk management was no exception.

In fact, risk management was affected more than some other professional disciplines. After all, one of the immediate results of the attacks was that any sort of terrorism insurance coverage for areas deemed high risk for future attacks vanished. Insurers were faced with huge losses from a peril—terrorism—for which they had not collected a single dedicated premium dollar.

Faced with a risk that couldn't be underwritten, they didn't underwrite.

As we report on page 1, the situation led to an unusual alliance of risk managers, insurers, business and labor leaders to seek a solution to the lack of cover. Without insurance, economic activity slowed in an already uncertain economy, threatening projects in some of the nation's largest cities.

The result was a successful effort to create a federal terrorism insurance backstop that would respond to truly catastrophic future terrorist events. Although the concept enjoyed widespread bipartisan support, there were disagreements on the details, and final passage of the Terrorism Risk Insurance Act—also known as TRIA—didn't occur until late 2002.

During the effort to pass TRIA, and two subsequent efforts to reauthorize the program that now runs through 2014, risk managers exerted more influence in Washington than they ever had before, with the possible exception of successfully securing passage of the Liability Risk Retention Act of 1986. The efforts arose from necessity: Without the backstop, many companies would have been hard-pressed to find adequate terrorism insurance at any price.

Since then, risk managers have played a key role in passing the Nonadmitted and Reinsurance Reform Act, which became part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. They have grown increasingly sophisticated in the ways of Washington, to the point that the Risk & Insurance Management Society Inc. recently launched its own political action committee—RISK PAC.

That sophistication should lead risk managers to begin preparing now for the next drive to reauthorize the federal terrorism insurance backstop. The battle to create the program was hard-fought, and there's no reason to believe that the next battle to extend it will be easy.