Key subcommittee chairman favors six to eight-year terrorism insurance extension

Insurance industry pushes for longer period with some in favor of 20 years or more

In his opening statement as chair of a U.S. House of Representatives subcommittee considering extension of the Terrorism Risk Insurance Act (TRIA), Rep. Paul E. Kanjorski of Pennsylvania said he believes the act should be extended for a period of six to eight years.

At a hearing on April 24 in Washington, D.C., Kanjorski asserted that this length of time “is long enough to provide greater certainty to the marketplace and short enough to encourage the private sector to develop its own solutions to the problems posed by conventional terrorism.”

Congress enacted TRIA after the Sept. 11, 2001, terrorist attacks as a temporary program designed to give the private insurance markets time to develop models and pricing for terrorism risks. The act was extended in 2005 for two more years and is set to expire at the end of 2007.

“While TRIA has increased the availability and affordability of terrorism risk insurance, the market place is still tenuous,” Kanjorski said. “Insurers still have limited capital to cover terrorism losses alone and without federal assistance.” He noted that the property/casualty industry had $164 billion reserved for terrorism losses in 2005 but “according to the Insurance Information Institute, some models have predicted terrorism losses of more than double this number.”

Insurance industry representatives who spoke at the hearing supported a longer period of time, with some in favor of extending the act for 20 years, and others proposing no expiration date. But Kanjorski said a 15 to 20-year or more extension would “for all intents and purposes” result in a loss of institutional memory of the topic at the committee level.

Brian Dowd, chief executive officer, Insurance-North America, for the ACE Group, appeared on behalf of both ACE and the American Insurance Association. In a list of principles supported by both the AIA and the Coalition to Insure Against Terrorism that Dowd submitted with his written testimony, he asserted that “the program should have no expiration date, and thereby end only when Congress determines terrorism is no longer a threat.”

Vincent T. Donnelly, president and CEO of Pennsylvania-based PMA Insurance Group, who spoke on behalf of PMA and the Property Casualty Insurers Association of America, told the subcommittee that the need for market stability should be considered “so that we’re not looking at this issue every two years.” He said that a 10 to 15 year extension would add some permanency and enable the market “to react in a stable fashion.”

According to Kanjorski, an in depth study of the terrorism insurance issue is needed. Such a study, he said, was lacking in the original TRIA legislation and without it “we’re doing patchwork and that really does disturb me.”

He said the committee needs to explore how to “add nuclear, biological, chemical and radioactive (NBCR) coverage to TRIA.” The marketplace believes that in the event of an NBCR attack, “the federal government will step in and respond,” he said. “We therefore should explicitly address the government’s role.”

Kanjorski also favored eliminating the distinction between foreign and domestic terrorism events. He noted the “need to make sure to move this legislation as soon as possible,” and said the committee would try to move it along in the next few months.