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The Consumer Federation of America on Tuesday sent a letter to members of the U.S. Senate Committee on Banking, Housing and Urban Affairs urging them to not extend the federal terrorism insurance backstop set to expire at the end of next year.
In its letter, J. Robert Hunter, CFA director of insurance and former Texas insurance commissioner and federal insurance administrator, said that the insurance industry “has the capacity to insure properties against terrorism losses without continuing the massive taxpayer subsidies it has been provided under TRIA,” the Terrorism Risk Insurance Act.
The Terrorism Risk Insurance Program Reauthorization Act of 2015, itself an extension of the original TRIPRA of 2007, will expire Dec. 31, 2019, if Congress fails to act.
The CFA claims the industry has ample resources to insure a terrorist act.
“We believe the program is no longer needed,” Mr. Hunter said in his letter. “By the end of 2018, the surplus of the property/casualty insurance industry (the amount of money backing up the business the insurers write) was $742 billion, according to data released by the Insurance Services Office and American Property Casualty Insurance Association. Prior to the 9/11 attacks, the industry’s surplus was $326 billion, or only 44% of the current surplus.
“The current industry surplus of $742 billion dwarfs the $27 billion (in 2019 dollars) of insurer losses from 9/11. Even in the extremely unlikely event of a claim or series of claims totaling four times larger than 9/11, the industry is financially positioned to handle the losses. Under the current rules of TRIA, we estimate that insurers would be responsible for about $85 billion of losses before the federal reinsurance kicked in. Without TRIA, industry would be responsible for an additional $23 billion, the full $108 billion of such an extraordinary event or series of events. That is well within the capacity of the insurance industry without any need for a federal bailout.”
In addition to calling on Congress to end the TRIA program, CFA offered two alternative proposals. One proposal is to eliminate TRIA and replace it with a mechanism in the Federal Emergency Management Agency designed to react to the details of any such extreme event and provide taxpayer-funded coverage for an act of terror only if and after the industry surplus is diminished by 30%. A second alternative is to renew TRIA’s backstop for insurance companies but require companies to pay an "actuarially sound" premium for the reinsurance provided, according to the letter.
“At a time of record-breaking federal budget deficits and near all-time high insurer surpluses, we question the wisdom of providing multi-billion dollar subsides to an industry that can easily afford to insure several terrorist events even larger than 9/11,” Hunter said in his letter.
With the federal terrorism insurance backstop program set to expire at the end of 2020, insurers and brokers are beginning to consider steps to take should any changes occur.