Forum: Extend terrorism insurance backstop

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That American businesses now view terrorism as a bigger risk to the U.S. economy than weak job growth or the budget deficit should come as no surprise to those who live or work in the nation's capital.

An elevated terrorism threat level, increased police presence and repeated warnings to remain vigilant where we live, work and commute have become a way of life after September, 11, 2001. So has the need for terrorism insurance.

Thankfully, such coverage is now generally available and more affordable than before enactment of the Terrorism Risk Insurance Act (TRIA) of 2002. But for how much longer?

Although Treasury Secretary John Snow has already extended through next year a provision requiring insurance companies to make coverage available for certified acts of terrorism on the same terms and conditions as other lines of insurance, the reluctance of insurers to issue such policies without the government's backing makes TRIA's continuation -- through at least 2007 -- absolutely necessary.

After the 2001 attack on America, insurers and reinsurers refused to write terrorism-specific policies, convinced another assault on the scale of the World Trade Center's destruction would be economically catastrophic for them. The situation improved only when Democrats and Republicans banded together and heeded the president's call to create a backstop.

The resulting law -- TRIA -- has restored the terrorism insurance marketplace. Yet, two years after TRIA's enactment, business insurance policyholders represented by the 71-member Coalition to Insure Against Terrorism (CIAT) -- a broad coalition of insurance consumers -- have real doubts about the private market's ability to function well without such a law.

First, we see no evidence a private market for reinsurance is emerging, despite the TRIA limitation on the insurance industry's risk. As the U.S. General Accounting Office observed in an April 28 report, "little progress has been observed within the private sector toward either finding a reliable method for pricing terrorism insurance or developing any viable reinsurance alternatives to TRIA once it expires."

Second, though TRIA backstops all risk, including nuclear, biological, chemical and radiological, insurers have largely declined to provide such coverage and have won exemptions at the state level.

Legislation has been introduced in both the House and Senate calling for a two-year extension of TRIA. The House Financial Services Committee is scheduled to vote on it Sept. 29 and final passage must be accomplished before Congress adjourns next month. Why? With insurance written or renewed every day, those consumers whose policies conclude at various dates in 2005 will find available only limited-duration coverage that expires with TRIA. There is enough insurance uncertainty without short-year policies.

Few debate the program's need in this dangerous environment. In fact, policyholders' demand for terrorism coverage is no longer questioned now that insurance broker Marsh has reported a nearly doubling in the take-up rate in the last year (exceeding that for events such as floods and earthquakes).

Believe it or not, the Overseas Private Investment Corp., a federal agency, has provided an economic shield against terrorism to U.S. investors for projects abroad since 1971. It would be ironic if the same government let TRIA lapse, or if government-backed economic protection against a terror attack be easier to obtain in Saudi Arabia than in San Francisco.

With intelligence reforms and other changes urged by the September 11 commission likely to top Congress' near-term agenda, continued availability and affordability of terrorism insurance coverage, made possible only by extending TRIA, must be considered crucial.

Unless the law is extended this year, American businesses will have little prospect of securing terrorism coverage beyond next year. Economic growth and development again will be slowed by lack of terrorism insurance. Jobs, especially those tied to construction, will be lost. Congress must not allow that. The Terrorism Risk Insurance Act should be extended without delay.

MARTIN L. DEPOY

Steering Committee coordinator of the Coalition to Insure Against Terrorism (CIAT).