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WASHINGTON—The Obama administration wants to scale back government support for the federal terrorism insurance program.
According to budget documents released Monday, the administration’s plan would eliminate “nearly $250 million in federal subsidies to insurance companies for terrorism insurance. These subsidies are no longer necessary given the robust private market for such insurance, and domestic terrorism insurance policies are now sufficiently available and affordable to meet demand. According to industry data, property and casualty insurers’ surpluses—the balances available to pay claims associated with covered terrorist attacks—are currently estimated at over $490 billion.”
The administration calls for increasing the deductibles and copays for insurers that participate in the program starting in 2011. It would also eliminate coverage for acts of domestic terrorism. The administration had called for similar changes last year, but Congress never took up the issue.
Congress established the government backstop, which would be triggered only by a truly catastrophic terrorist attack, by passing the Terrorism Risk Insurance Act of 2002. The program was modified and renewed in 2005 and then again for seven years in 2007.
A spokesman for the Washington-based American Insurance Assn. noted the effort that had gone into the most recent extension.
“TRIA was reauthorized for a period of seven years as the result of a carefully negotiated compromise,” he said in an e-mail. “Any attempt to modify this reauthorization would have a detrimental impact on the availability and affordability of terrorism risk insurance.”
“We are concerned about the administration’s proposal to cut nearly $250 million in federal ‘subsidies’ to insurers for terrorism insurance,” said Nicole Allen, vp at the Council of Insurance Agents & Brokers in Washington, in a statement. “The administration cites a ‘robust private market’ and increased affordability and availability of coverage as reasons that these subsidies are no longer necessary, but the main reason that terrorism coverage is affordable and available is because of the TRIA program. The continued existence of TRIA has brought a good deal of certainty and stability to the marketplace, and we hope that will continue.”