More than a decade after Congress got into the insurance business, offering policies for businesses wary of terrorism-related losses in the wake of the Sept. 11 attacks, lawmakers are weighing the program's future.
"It is critical to our families, workers, businesses and economy that Congress develops a long-term solution to terrorism risk insurance," said Rep. Judy Biggert, Illinois Republican and chairwoman of the Financial Services subcommittee on insurance, housing and community opportunity, which held a hearing Tuesday on the program.
The Terrorism Risk Insurance Act, established in November 2002, serves as a federal backstop for private insurers who started dropping terrorism coverage after 9/11 because of the uncertainty of future attacks. The law requires private insurers to offer government-backed terrorism policies to businesses. With the government backing, insurers are on the hook for only a small portion of potential losses.
The program is set to expire in December 2014, and insurers and company policyholders are calling on Congress to renew the subsidy or watch insurers drop the coverages or raise premiums.
Opponents of the program say TRIA has served its purpose and it's time to move on.
"We have now reached a point where the private sector is increasingly capable of providing that coverage at appropriate prices without government support," said David John, senior research fellow in retirement security and financial institutions at the Heritage Foundation. "The insurance crisis has passed, and the insurance industry now has enough information about terrorist attacks to again provide this coverage."
The costs of terrorism insurance has declined, Mr. John said, because more than 75 percent of larger firms have purchased coverage -- and there have been no major attacks since 2001.
Continuing to rely on government support only leads to underpriced coverage, he said.
Terrorism insurance policyholders, on the other hand, point out that when TRIA was about to expire in 2005 and 2007, insurers indicated they were planning to spike rates.
Rolf Lundberg, senior vice president for congressional and public affairs at the U.S. Chamber of Commerce, told the subcommittee that terrorism insurance remains "vital" to the economy.
"The terrorism peril is simply too intrinsically linked to government policy and intelligence to be solely handled by the private sector," said Mr. Lundberg, testifying on behalf of the Coalition to Insure Against Terrorism, of which the Chamber is a member. "As we saw in the months following the 9/11 terrorist attacks, the lack of terrorism insurance contributed to a paralysis in the economy."
The terrorist attacks on the World Trade Center on Sept. 11, 2001, led to $35 billion in claims -- an unexpected strike that nearly led to the collapse of the terrorism insurance industry and an economic slowdown in industries such as construction, tourism, business travel and real estate finance.
Studies show that more than $415 billion in real estate transactions were stalled or canceled in the 14 months after the attacks because of the lack of terrorism insurance, which led to the direct loss of 300,000 jobs from deferred construction projects.
The impact of limited terrorism insurance coverage would be even worse in today's economy, Mr. Lundberg said. "There is every reason to expect that the jobs impact would be greater and more widespread today were the certainty of the terrorism insurance program to be pulled out from under our economy."
TRIA provides a safety net for private insurance companies when the cost of terrorism exceeds an insurer's coverage ability.
Proponents argue that terrorism insurance actually saves the government money, because without it taxpayers would end up paying more in ad hoc disaster assistance, if such an event were to occur.
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