Treasury Check

At a recent gathering of New York independent agents and executives in Westchester, a well-respected insurance company executive proceeded to give his impressions of what is happening in Washington with regard to the Terrorism Risk Insurance Act. He reported on the industry’s frustration over the lack of support from Democrats for TRIA renewal and the continued backing of Republicans.

He misspoke; he had it backwards. It’s the Republicans who are delaying TRIA, not Democrats. Nobody corrected the executive; apparently many heard what they wanted to hear or they simply forgave him. After all, how much experience do insurance executives have praising Democrats for supporting their causes?

The industry’s concerns over TRIA renewal are mounting. Along with cries from key Republicans for a private market solution to terrorism coverage, the industry is having to cool its heels because other Republicans in Congress and the White House, along with some Democrats, are waiting for a report from the Treasury Department, due out in June, before deciding whether to support renewal of TRIA, with what conditions and for how long.

With just two months to go before the Treasury study is to be released, the property casualty insurance industry is getting nervous over whether this much-anticipated document will accurately reflect the industry’s capability to provide terrorism coverage without an extension of TRIA. In a letter to Treasury officials overseeing the TRIA study, a coalition of insurance company groups has expressed its reservations. Many of the group’s individual members are part of the survey sample for the Treasury’s study. The group has criticized the surveys’ questions and inconsistencies. At best, the surveys will only provide highly generalized information about the private insurance market without TRIA.

Even more troubling is Treasury’s apparent reluctance to look beyond its surveys and draw upon other market information, such as publicly-available financial data, rating methodologies, and other terrorism risk insurance studies.

The Treasury might also factor in the reality that the risk of terrorism is not likely to recede any time soon and the private market conditions following September 11 and preceding enactment of TRIA when the market was unstable.

Also, Treasury should consider the fact that even with TRIA, the capital markets have not shown any significant interest in providing additional terrorism risk capacity.

Then there is the matter of the existing state regulatory system. New York, Georgia and Florida have refused to approve conditional forms. Insurers have no ability to limit terrorism coverage for workers’ compensation in all states or commercial property coverage in 19 states. These “free market” obstacles make reliance on the private insurance market to address terrorism risk unworkable.

Lastly, the industry is recommending that Treasury interview a few reinsurance brokers. The reinsurance brokers’ experience and other outside information might serve as a good “reality check” against the Treasury’s apparently misguided surveys.