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Public/private partnership necessary to insure terror risks


As far as we're concerned, official Washington was treated to an exercise in the obvious last week when the Government Accountability Office reported that private insurance has no--and is highly unlikely to develop any--appetite for covering chemical, nuclear, biological and radiological terrorism risks.

That's hardly surprising since the insurance industry has been saying as much for years, and has received a generally sympathetic hearing on Capitol Hill. But the administration has insisted that the federal role in backing up terrorism insurance should be a very limited one, if there is to be a role at all.

We know that the existing federal backstop created by the Terrorism Risk Insurance Act of 2002 was never intended as a long-term solution. Disagreement over the proper role of government stalled it for about a year, and those arguments nearly destroyed the backstop when it came up for renewal last year. We heard repeatedly that the goal of TRIA and its subsequent renewal was to give the private insurance industry time to develop a permanent solution to financing terrorism risk.

That debate will continue. But the GAO study noted that terrorist attacks involving chemical, nuclear, biological and radiological weapons are not insurable by private markets. While arguing over the finer points of federalism, both the legislative and executive branches of government must keep in mind that terrorists will use whatever means are at their disposal to cause disruption and chaos. To be sure, CNBR exposures are frightening and enormous.

We should recall that the 9/11 attacks at the time caused the largest-ever insured loss--exceeding $20 billion for property alone--and they were conventional compared with CNBR attacks.

If terrorists one day succeed in re-creating a 9/11 type of attack, using more planes, the resulting loss of life and property could be comparable to the oft-cited "dirty bomb" attack. Either way, the economic shock would overwhelm private insurers and reinsurers.

We believe that the GAO's finding that the private market won't bear CNBR exposures was the obvious one. We hope the administration accepts that obvious conclusion and recognizes that some risks are potentially so destructive that the federal government cannot shrug them off.

A public/private partnership of some sort is the only way to confront an inherently unpredictable risk, which includes all terrorism risk.