TRIA renewal is not a long-term solution, claims panel

The recent move by Congress to extend the Terrorism Risk Insurance Act (TRIA) did not provide the in...

The recent move by Congress to extend the Terrorism Risk Insurance Act (TRIA) did not provide the industry with the long-term solution it needs. That's the assessment of experts participating in a recent web seminar sponsored by the Insurance Leadership Institute of GE Insurance Solutions (GEIS).

"The problem with the TRIA extension is that it further dilutes the protections provided by the original act," said Kim Prather, underwriting risk leader for Commercial Insurance, GEIS. "The industry's per-event threshold was raised; several lines of business were excluded; and deductibles were increased. What we didn't end up with was a long-term solution."

Mr Prather joined Frank Nutter, president of the Reinsurance Association of America (RAA), and Joanne McMahon, assistant general counsel for government relations at GEIS, in a discussion on the extension of TRIA and what it means for the insurance industry.

He added that with the diminishing involvement of the government as a provider of a federal financial safety net, the TRIA extension could raise potential solvency concerns in the event of a terrorist act.

"We're still left with an inability to underwrite and price for the exposure - due to largely insufficient data," Mr Prather said.

He explained that the industry still doesn't have the ability to reserve against terrorism losses adequately. "We don't have domestic terrorism included in the coverage either," he said.

GEIS believes the industry must continue to improve its modelling capabilities in order to develop an adequate price for this exposure, Prather said. Since the TRIA extension does not provide adequate insolvency protection for the industry, insurers and reinsurers must continue to manage terrorism exposures aggressively.

TRIA was originally enacted in November 2002 and extended by Congress in December 2005 until 31 December 2007. It was designed as a federal safety net for the exposure the insurance industry faces as a result of an attack on the US by foreign terrorists.

In his presentation, Mr Nutter of the RAA noted that Congress and the administration will increasingly resist another straight extension of TRIA. Mr Nutter commented that the priority of some Republican members of Congress is to raise the industry's involvement by increasing the industry's role in providing protection against a terrorist attack. He added that this could be accomplished by increasing the deductibles, co-payments and size of events covered by the act, and also possibly excluding more lines of insurance covered.

"By 2007, hopefully the industry will have an agreement on a proposal, because I would not expect the administration or the Republicans in Congress to initiate a proposal on their own," Mr Nutter said.

This reality is leading a variety of groups to try to develop "a workable long-term solution" - long before the 2007 deadline, said Joanne McMahon of GEIS. She said a variety of solutions are being discussed, noting that most involve a combination of private market and government participation in some type of a pooling concept.

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