AIA Supports A Long-Term Public-Private Partnership For Terrorism Insurance

Washington,DC – Charles Clarke, Vice Chairman of Travelers, testified recently before U.S. Senate Banking Committee members that terrorism remains an uninsurable risk for private sector insurers, and endorsed the view of the committee's chairman that a public-private partnership to insure against terrorism risk be continued for the long-term.

"Characteristics that make terrorism an uninsurable risk remain as strong today as they were immediately following September 11, 2001," stated Clarke, who was testifying on behalf of the American Insurance Association (AIA).

"Most experts agree that it is not a matter of if, but when, another catastrophic attack will occur onU.S.soil. A continued, vibrant federal terrorism risk insurance program therefore remains vital to the national security and economic well-being of our nation for the foreseeable future," Clarke said.

Noting that the Terrorism Risk Insurance Act (TRIA), and the TRIA Extension Act (TRIEA) have worked by making terrorism insurance widely available to U.S. businesses, Clarke made the case for a continued public-private mechanism for management of terrorism risk that increases federal financial participation in the event of a chemical, nuclear, biological, and radiological (CNBR) attack.

Clarke pointed to themes contained in an October 2006 report by the President's Working Group on Financial Markets (PWG), which noted the present absence of a private market for CNBR terrorism risk insurance, and little potential for a private market for this type of terrorism risk to emerge in the future. "These conclusions are entirely consistent with those of a contemporaneous report by the Government Accountability Office on CNBR terrorism risk," Clarke noted.

More than restating the problem, Clarke also outlined approaches for developing an effective and fiscally efficient federal program for the public-private management of terrorism risk. These include keeping the existing TRIEA backstop in place for conventional terrorism risk, expanding the federal government's financial role in managing CNBR terrorism risk, eliminating the artificial distinction between foreign and domestic terrorism, reviewing the program's current $100 million trigger to better help small and mid-sized insurers, and preempting burdensome state rate and form regulation with respect to terrorism insurance rates and policy forms.

"Finally, we strongly support Chairman Dodd's view that the program should be made permanent, or at least remain in place until theU.S.has won the war on terrorism—our ultimate goal," stated Clarke

SOURCE: AIA