White House opposes permanent backstop

WASHINGTON—The Bush administration is willing to work with Congress regarding the federal government's role in guaranteeing terrorism insurance, but remains committed to the eventual elimination of the terrorism insurance backstop program, says one of the president's key economic advisers.

"The president believes in the long run, TRIA is not needed," said Allan Hubbard, director of the White House's National Economic Council, referring to the Terrorism Risk Insurance Act that created the backstop in 2002.

The terrorism backstop was one of a series of insurance issues Mr. Hubbard discussed last week during an address to the annual Insurance Reform Summit in Washington, sponsored by the Networks Financial Institute at Indiana State University.

In general, "we should be very careful about getting the federal government involved in insurance," he said.

Regarding the terrorism insurance backstop, the administration thinks insurers should take higher deductibles and make higher copayments before tapping the program, Mr. Hubbard said.

The administration also believes the program should not be expanded, he said.

The White House is not declaring that the terrorism backstop, which is scheduled to expire on Dec. 31, be eliminated "immediately," but Mr. Hubbard stressed that the administration believes it should be eliminated eventually.

He was more adamant regarding proposals to create a natural catastrophe insurance fund. "It's totally inappropriate," Mr. Hubbard said. Many of the property insurance problems experienced in the post-Hurricane Katrina Gulf Coast are "self-inflicted," as state insurance regulators have held rates artificially low, he said.

The private sector cannot compete against the government when rates are subsidized, he said. "We think this is a problem that should be dealt with at the state level" and state officials should bear in mind the implications of subsidization.

Regarding possible federal insurance regulation, "We very much believe in the state insurance system." Yet, "we wish it were easier to sell from state to state," he said.

"You can tell I'm punting," he added.

An earlier summit speaker, House Financial Services Committee Chairman Barney Frank, D-Mass., declined to make a firm commitment for or against federal insurance regulation.

Rep. Frank said good arguments exist for uniformity, and having multiple state regulations can result in inefficiencies. But he stressed that any federal system to regulate insurers must contain significant consumer protections to be acceptable.

Rep. Frank said he would support a federal role in insurance regulation "as long as they hit a pretty high level" of what's already being done by the states in terms of consumer protection. That will be the context in which Congress will debate the idea of an optional federal charter for insurers, he said.