- The Washington Times - Thursday, June 30, 2005

A year ago, as we approached July 4th, I started thinking about the events we cherish during this patriotic season — downtown parades, sporting events at packed stadiums and picnics among family and friends — that are all part of our way of life.

Our nation had then, as now, a government program in place that let us celebrate the holiday with assurance that our economy would be protected from a calamitous terrorist attack on our soil. Such an attack might dwarf September 11 and could, with one blow, strip the insurance industry of its ability to help cities rebuild and the economy recover.

The program, called the Terrorism Risk Insurance Act, or “TRIA,” which Congress passed in 2002, will end in six months unless Congress acts soon. Under TRIA’s provisions, the government takes on the role as terrorism insurer of last resort.

We’re one year closer to TRIA’s demise this July 4th, but the threats have become even greater. The Treasury Department yesterday released a long-awaited report on TRIA’s effectiveness. Other voices need to be heard as well. From our vantage point on the front lines of terrorism insurance, TRIA has done its job.

Taking a step back in time, the destruction of the World Trade Center was what the insurance industry calls a “triggered building collapse.” The building, the businesses in it, their employees and the people and economy in nearby neighborhoods all took a direct, terrible hit. Insurance policies, backed by reinsurance treaties — the so-called ‘private markets’ — allowed damage claims to be paid in full. That’s how the industry worked.

But now imagine something far worse, and remember that the terrorist mind is always working to undermine our defenses and deploy weapons that do maximum harm. A nuclear, biological, chemical or radiological attack centered in the same area could spread from lower Manhattan and contaminate much of the city and region.

The same is true in Washington, D.C., which must also deal with its status as a target.

But New York and Washington are not alone. Any place on our soil could be the next battleground in the War on Terror. Insurers are ready to respond in every way within their means, as they do with natural disasters, to help victims recover and rebuild.

The thing about hurricanes and tornadoes — nature’s wrath — is that a century of pinpoint data on their frequency and severity allows their impact to be predicted. It can also be priced. That’s why private markets join insurers in assuming and managing those risks.

No such data exists for a wide-area terrorism event. We don’t know when, how or what damage the next attack may wreak. The government tells us this is not a matter of “if” but “when.” Insurers may continue to offer terrorism insurance to businesses, but private markets can’t be forced to play Russian Roulette with their assets should the worst occur. For them, it’s an unacceptable bet to make.

This is why the government’s program is so important, and why it needs to be extended.

TRIA gives us a measure of economic security which, along with political stability, are the underpinnings of democracy.

Using TRIA’s formula, the insurance industry would absorb claims for any attack up to $30 billion, an event roughly the size of September 11. That encompasses most of the scenarios terrorism experts imagine for conventional attacks. When an attack assumes proportions of far greater magnitude, the industry would still pay a substantial share of the cost, with the government acting as reinsurer, or the ‘insurer of last resort.’ Insuring against a wide-area attack that causes, according to some models, ten or more times the economic damage of September 11, is a risk that only the United States Government has the resources to assume.

Along with the Department of Homeland Security, we can all work to mitigate the chance of such an event occurring. Unless we are attacked, the program costs little to maintain, and it’s reassuring to know there is a good system in place should it happen. If an act of war happens here, everyone should be at greater peace on this and future Independence Days knowing a government reinsurance program will help recovery begin immediately.

As I talk about this issue with people in small and large cities alike, their concern is palpable. In some cities, the threats are obvious: skyscrapers, ports, nuclear plants and stadiums. In others, the calculus requires one more step: a catastrophic attack in one place reverberates everywhere else — quantifiable in jobs and commerce — in our interlinked economy. Having a plan in place is in everyone’s interest.

There will someday be a permanent answer to this public problem. We’re not there yet, but we do have a good, temporary substitute. It’s called TRIA, it works, and it would be folly to let it die.

Ramani Ayer is the chairman and CEO of the Hartford Financial Services Group.

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