Sen. Michael Enzi (R-WY)
Member, Banking, Housing, and Urban Affairs Committee

Congress is faced with the important task of evaluating and updating the Terrorism Risk Insurance Act (TRIA) before the end of 2005. Reforms to TRIA should ensure that terrorism insurance remains available to businesses and property owners, but any reauthorization should be short term and done in a way that reduces industry reliance on the federal government.

Supporters note that terrorism insurance is accessible and affordable today because of TRIA. However, this has been achieved, in part, by shifting the risk of terrorism insurance to the American taxpayer.

Senate Banking Committee members and the administration have voiced the need to fundamentally reform TRIA. The U.S. property-casualty insurance industry made a record-breaking $30 billion in the first half of 2005. Yet some argue that the terrorism insurance market has not developed enough to survive without help. If true, Congress must find stronger incentives to encourage private development of these products and work with the insurance industry to increase capacity.

To comply with the original intent of TRIA, any extension should be temporary. Current proposals would further reduce taxpayer risk, including increases in deductibles and co-payments, and would eliminate smaller lines of insurance that pose less risk to private insurers. In 2001, I supported limitations to taxpayers' obligations to cover damages awarded in settlement following a terrorist attack. These solutions should be considered in the debate for effective TRIA reform.

The threat of terrorism will not abate in the foreseeable future. We must encourage industry to adequately price and cover this risk without government subsidies.

Rep. Paul E. Kanjorski (D-PA)
Member, Financial Services Committee

Insurance companies have developed expertise in assessing risks and in predicting the likelihood of natural disasters to determine the amount of premiums needed to cover those expected losses. 
Unlike hurricanes or fires, acts of terrorism are man-made disasters and inherently unpredictable in frequency and in scale. Prior to 2001, many insurers included terrorism coverage at no additional cost in property-casualty policies. However, the insurance industry  sustained more than $30 billion in losses as a result of 9/11. Reinsurers decreased the supply of terrorism
reinsurance, and insurers began to exclude terrorism coverage. 

Congress recognized that the private insurance industry was ill-equipped to determine the likelihood of future attacks and established a temporary federal backstop to help guarantee the payment of insurance claims in the event of a terrorist attack.    

Unless Congress acts again, the Terrorism Risk Insurance Act (TRIA) will expire at the end of 2005. Because of a lack of reinsurance, insurers are unwilling to cover acts of terrorism in their property-casualty policies; investors are unwilling to put their own funds at risk without insurance. Billions of dollars of investment have been delayed because of the uncertainty of the continuation of this federal backstop. If TRIA is allowed to expire, the repercussions to our economy could be enormous.    

We designed TRIA as a temporary backstop, pending the private sector's development of its own models to price terrorism reinsurance. But the insurance industry needs more time. A permanent private sector solution is necessary.