A united insurance industry urged Congress last week to extend the Terrorism Risk Insurance Act for two more years to maintain the stability of the insurance marketplace as well as the nation's overall economy.

John J. Degnan, vice chairman of Warren, N.J.-based Chubb, told the Senate Banking Committee that terrorism, like war, is a societal risk and is uninsurable. “To ask the insurance industry to absorb losses resulting from an attack against our nation places the U.S. economy and our national security at great risk,” Mr. Degnan said in prepared testimony representing virtually every major insurance company and agent trade group.

“Without a risk-spreading mechanism, the right attack could very well bring the insurance industry to its knees and significantly destabilize our economic infrastructure, achieving a primary aim of the terrorist,” he said. “We simply cannot afford to let TRIA expire and leave this important matter to chance.”

To date, he said, terrorism risk cannot be modeled or predicted with any accuracy. Past terrorist attacks, Mr. Degnan noted, are not predictive of future events, and the full range of possible scenarios can never truly be known.

Terrorism risk defies normal underwriting and rating principles, effectively limiting the ability of insurers to advance a private mechanism for that risk, he said. Congress must therefore act now to extend TRIA, according to Mr. Degnan, to avoid destabilizing the market.

Time is running short, he warned. Although TRIA does not expire until Dec. 31, 2005, the policies that rely on TRIA are written every day usually for a 12-month term, which means that some insurance will be written before TRIA's expiration but extend beyond it, he explained.

Insurers, he added, will have no choice but to evaluate every policyholder considered for coverage during this period as if the backstop will not exist for at least part of the coverage period.

Delaware Insurance Commissioner Donna Lee Williams also urged Congress to extend TRIA this year. “Because some terrorism risks are largely uninsurable without a financial backstop, state regulators are very concerned that significant market disruptions will develop before TRIA's expiration,” Ms. Williams said on behalf of the Kansas City, Mo.-based National Association of Insurance Commissioners.

By changing the expiration date to Dec. 31, 2007, she said, Congress would have about 15 months to digest and debate the Treasury Department report on the effectiveness of TRIA, which is due on June 30, 2005.

From a reinsurance standpoint, Jacques E. Dubois, chairman of Swiss Re America, said that for the most part his company does not provide terrorism reinsurance because it cannot quantify the frequency or severity of possible events. A two-year extension, he added, will provide protection to insurers and reinsurers while allowing additional time to assess terrorism risk.

He warned, however, that it might never be possible to capture, in a model, the intentions of human minds that strive to inflict maximum devastation and suffering.

But J. Robert Hunter, director of insurance for the Washington-based Consumer Federation of America, said TRIA is not necessary and should be allowed to expire. The insurance industry, he said, is more than ready to stand on its own two feet.

“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.

United We Stand

John J. Degnan, vice chairman of Chubb, testified before the Senate Banking Committee on behalf of a wide range of industry associations.

On the company side, the associations include the:

o American Insurance Association

Financial Services Roundtable

National Association of Mutual Insurance Companies

Property Casualty Insurers Association of America

Reinsurance Association of America

Surety Association of America

UWC Strategic Services on Unemployment and Workers' Compensation

On the agent side, the associations included the:

Council of Insurance Agents and Brokers

Independent Insurance Agents and Brokers of America

National Association of Professional Insurance Agents

Reproduced from National Underwriter Edition, May 21, 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.