Industry lobbyists flood D.C. looking for terrorism insurance relief

Published 20 September 2006

Five years after 9/11 Terrorism Risk Insurance Act is set to expire; insurance, real estate, and financial services sectors disagree about correct approach; Bush administration opposes extension, looks for alternatives

No single industry felt as threatened by the 9/11 attacks as the insurance sector. The destruction of the World Trade Center not only resulted in $32.5 billion in paid claims, it also exposed the industry’s vulnerability to future attacks. Many refused to cover terrorism losses at all, preferring to designate them as acts of God. Responsive to such concerns, Congress passed the Terrorism Risk Insurance Act (TRIA), under which the federal government would act as backstop if the losses from a terrorist attack to any particular company were to exceed that insurer’s detuctible. At the time, with untold threats looming on the imminent horizon, the law seemed like good public policy. Without it, Congress was told, the insurance industry might collapse. Five years later, the act is scheduled to expire, and lobbyists from the insurance, real estate, and financial services sector are flooding the Hill looking for an extension.

Not all agree on what such an extension should look like, and there is little to no coordination between the various industries involved. Former American International Group chief executive Maurice Greenberg, a forceful advocate for an extension, has proposed allowing insurance companies to create tax-free acounts to build reserves that would be used to cover terrorism losses. “The industry can handle the impact of another 9/11, what it can’t is the aftermath of a dirty bomb or a poisoned water supply in a major city,” Greenberg recently told the Barbon Institute for Risk Management and Insurance, an industry think tank. The real estate industry, however, worried that insurance companies will not sufficiently indemnify them, “propose a $30 billion fund paid for by insurance companies that can be tapped to cover terrorism claims. Under the plan, the government would keep serving as an insurance backstop for five to seven years until the fund is operational.” The American Insurance Assocaition, for its part, prefers extending the act in its basic form, with insurers covering attacks caused by conventional weapons up until the federal backstop, and with the federal goverment covering all losses associated with nuclear, biological, and chemical weapons. The Bush administration opposes the scheme.

-read more in Brody Mullins’s and Liam Pleven’s Wall Street Journal report