Experts: TRIA must address evolving private-sector threats.
Enacted in November 2002 in the wake of the Sept. 11, 2001, terrorist attacks, TRIA created a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act allows commercial mortgage borrowers to obtain terrorism insurance coverage at a reasonable cost, while satisfying terrorism insurance requirements of commercial servicers. TRIA is set to expire at the end of 2005.
TRIA not only must be renewed, but it must be improved to provide adequate economic and financial protection against an evolving terrorist threat, said Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center, University of Pennsylvania, Philadelphia.
"Another comparable attack [to Sept. 11] in the short term could seriously impact the public by threatening the financial stability of the insurance industry and its ability to protect public and private property," said Kunreuther.
The Mortgage Bankers Association supports extension of TRIA through 2007, as well as the crafting of a permanent solution for terrorism insurance coverage.
TRIA was created in 2002 as a temporary solution, but its extension or replacement will need to address the new realities of tomorrow, including the need for more involvement by the private sector, said Douglas Holtz-Eakin, director of the Congressional Budget Office (CBO).
Advocates of a large-scale government bail-out should disabuse themselves of the notion that the private sector can't bear the costs, because one way or another the private sector will pay, warned Holtz-Eakin.
Robert Reville, co-director of the RAND Center for Terrorism Risk Management Policy, Santa Monica, California, noted an ever-increasing risk for the private sector in the wake of government successes on the global war on terrorism.
"Terrorism is a dynamic threat," Reville said. "The terrorists react to our actions and seek innovative ways to undermine our defenses." Among the recent trends, he noted, is an increased focus on "soft" targets, or civilian-centric venues, as well as an ongoing emphasis on economically motivated attacks.
Reville noted two key implications for terrorism insurance coverage in a RAND report he co-authored, Trends in Terrorism: Threats to the United States and the Future of the Terrorism Risk Insurance Act. First, TRIA does not provide adequate financial protection, particularly in the face of economically motivated attacks. Second, TRIA has "significant gaps and is not robust enough given an evolving threat," the report noted.
The most profound risk is in the area of chemical, biological, radiological and nuclear (CBRN) attacks, for which insurers are not required to offer coverage except under workers' compensation.
Another significant gap is TRIA's exclusion of domestic attacks, which is problematic because al Qaeda "franchises" attacks to local affiliates and because it is difficult to attribute attacks to a particular group, according to the report.
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|Title Annotation:||terrorism Risk Insurance Act of 2002's renewal|
|Date:||Nov 1, 2005|
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