“Our study clearly documents that the insurance industry is more than ready to stand on its own two feet and that taxpayer back-up should end,” said J. Robert Hunter, CFA's director of insurance.

“The ability of the industry to insure against terrorism is enormous and growing, profits are quite substantial, and the financial condition of insurers overall is rock solid,” he said.

Industry representatives criticized CFA's analysis, arguing that it understates the risk and the need for a federal backstop for terrorism-related losses.

CFA said that only nine communities in the nation are at either a high or moderate risk of being the target of a terrorist attack. Those at high risk are New York City, San Francisco County, the District of Columbia and Cook County, Ill., which includes Chicago.

The communities at moderate risk, according to CFA, are Suffolk County, Mass., which includes Boston; King County, Washington, which includes Seattle; Los Angeles County; Harris County, Texas, which includes Houston; and Philadelphia County.

CFA said that if Congress does decide to continue the TRIA program, it should consider a plan that focuses on these communities.

In addition, CFA said, the industrywide deductible for terrorism coverage should increase to a pretax figure of $77 billion for the first year of the program, and should then increase by another $10 billion per year.

CFA also said that the share of losses that insurers must pay above the deductible should increase from 10 percent to 15 percent.

Insurance companies should pay actuarially sound premiums for terrorism reinsurance provided by the government, if not a little higher, CFA added. Charging rates that are slightly higher, CFA said, will encourage private market mechanisms to compete by offering lower rates.

Industry representatives challenged CFA's assertions. Gary Karr, a representative of the Washington-based American Insurance Association, noted that Tom Ridge, the director of homeland security, recently said that the United States will be a “target rich environment” for terrorists this summer.

That is hard to square with Mr. Hunter's suggestion that the risk is not that severe.

“Mr. Hunter is surprisingly dismissive of the risks we face,” Mr. Karr said.

David Winston, senior vice president of federal affairs for the Indianapolis-based National Association of Mutual Insurance Companies, said that terrorism is a fundamentally uninsurable risk that requires a federal backstop.

There is no claims experience other than the Sept. 11, 2001 terrorist attacks, Mr. Winston said. And the best information relating to underwriting a policy is in the sole possession of the U.S. government and is and should be classified.

He said that TRIA should be extended and that its shortfalls should be remedied.

Joe Annotti, a representative of the Des Plaines, Ill.-based Property Casualty Insurers Association of America, criticized the suggestion that there is a taxpayer subsidy in TRIA.

Insurance companies, Mr. Annotti said, have significant exposure under TRIA and any government funds used to pay claims must be repaid by companies.

“There is a big difference between a bailout and a backstop,” he said.

The House Financial Services Committee is expected to conduct a hearing on TRIA extension soon, possibly before the Memorial Day recess.

Reproduced from National Underwriter Edition, April 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.