Terrorism Insurance; Federal Government Has a Role

The Washington Times (Washington, DC), July 12, 2005 | Go to article overview

Terrorism Insurance; Federal Government Has a Role


Byline: Ernie Csiszar, SPECIAL TO THE WASHINGTON TIMES

The threat of terrorist attacks on the homeland won't go away when democracies are established in Afghanistan and Iraq, or when a Middle East peace accord is signed. Like it or not, the threat of terrorism is with us for the long-term.

The recent attack in London serves as a reminder that our enemies are still cunning, committed and capable of carrying out senseless acts of terrorism at home and abroad. Despite enhanced security measures put in place since September 11, the freedoms we take for granted make America vulnerable to future attacks. The fact remains that such attacks are the biggest threat to our economy and are completely unpredictable - making them virtually impossible to insure.

The federal government has taken several important steps to both prevent future attacks and to mitigate the potential devastating damage such attacks can have on individual businesses and the nation's economy. A new cabinet-level federal agency - the Department of Homeland Security - was formed, intelligence gathering was consolidated and our military attacked the terrorists where they live.

On the economic front, Congress enacted the Terrorism Risk Insurance Act (TRIA) in 2002 to help ensure that terrorism coverage was available to those businesses that want and need it. TRIA put in place a three-year financial backstop that provides a degree of certainty about the maximum losses that any individual insurer would pay as a result of a terrorist attack. This certainty has helped foster what private market there is for terrorism insurance.

TRIA's looming expiration date of Dec. 31 - combined with the recently released Treasury Department report that recommends that the current program not be extended and that the federal government's role in insuring terrorism risks be reduced - puts into focus the options Congress faces on this complex and critical issue. Congress must decide whether to allow TRIA to expire and let the private insurance market assume the entire financial risk of future terrorist attacks or replace TRIA with a long-term program that shifts more responsibility to the private sector.

The Treasury Department report clearly recognizes the need for an ongoing federal role in the terrorism insurance arena and acknowledges the successes of TRIA in ensuring market stability, availability of coverage and economic growth since the September 11 tragedy. More importantly, the Treasury report reinforces the fact that it is impossible for anyone - insurers or government agencies - to predict the size, location or frequency of terrorist attacks. …

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