During a hearing last week on TRIA, both Republican and Democratic members of the committee said the uncertainty over whether TRIA will be extended could impede economic activity and interfere with the insurance market. Moreover, they said, Congress will have very little time to legislate unless Treasury makes a decision quickly.

Brian Roseboro, undersecretary for domestic finance with Treasury, was pressed repeatedly for a quick timetable for Treasury to decide:

o Whether to extend TRIA's “make available” requirement. Insurers are required to make terrorism coverage available to commercial policyholders through Dec. 31, 2004. However, Treasury has authority to extend the requirement through Dec. 31, 2005.

Whether the program itself should be extended beyond Dec. 31, 2005, which would require new legislation. Treasury is required to provide Congress with a report on the effectiveness of TRIA and on the ability of the private market to offer terrorism insurance if TRIA expires.

Despite being repeatedly urged to state a position on these two issues, Mr. Roseboro said Treasury is still collecting information and is not ready to make decisions.

Sen. Chris Dodd, D-Conn., said TRIA should have been a five-year program at the outset, but the political reality of the time made that impossible. Still, he said, TRIA has had an important psychological impact and injected confidence into the market.

Sen. Robert Bennett, R-Utah, said that he and Sen. Dodd are circulating a letter among committee members that will be sent to Treasury urging it to extend TRIA. He said he still believes that the failure of Congress to enact TRIA quickly in the first place prolonged the recession and contributed to the softness of the recovery. The recovery, he added, now has traction, and it would be a serious mistake if TRIA is allowed to expire.

Sen. Charles Schumer, D-N.Y., accused Treasury of having a “lackadaisical attitude” toward TRIA and said he is very concerned that Treasury does not appear to have a “sense of alarm” over the act's extension.

Sen. Schumer said he does not understand why Treasury cannot speed up the timetables contained in TRIA to make a decision on extending it. (TRIA sets a Sept. 1, 2004 deadline for a decision on whether to extend the existing law and a June 30, 2005 deadline for the report to Congress on the effectiveness of the program.)

Mr. Roseboro replied that Treasury understands that TRIA's timetables do not match up with the realities of the insurance business and will try to make adjustments to move the process along. But in his prepared testimony, he emphasized that Treasury must complete its ongoing data surveys to have the full and reliable information needed to make the evaluations required by the statute.

However, one committee member Sen. Wayne Allard, R-Colo. questioned the need for the legislation and challenged the insurance industry to disclose whether it believes TRIA should be permanent. He said he reluctantly supported TRIA originally because of the extraordinary nature of the Sept. 11, 2001 attacks and his belief that a temporary backstop was needed. He emphasized the word “temporary,” adding that TRIA itself leaves no ambiguity about the intent of Congress that the program should be short-term.

At the time, Sen. Allard said, the insurance industry came to Congress asking for TRIA, saying it needed a temporary backstop to allow the private reinsurance market to develop. Now, he said, the industry is coming back with the same arguments. “I'm not sure why we should believe it this time around,” he said.

If the insurance industry views TRIA as a permanent program, such as federal flood insurance, the industry should say so and then Congress can have an honest debate, Sen. Allard said. Once a sector of business becomes dependent on a “subsidy,” he argued, it becomes more and more difficult for the business to let go of it.

The real debate, according to Sen. Allard, is whether TRIA will be a permanent program or not. The insurance industry has to be clear on that point, he said.

Why No Coverage?

Why hasn't the private market responded to create terrorism insurance capacity since passage of the Terrorism Risk Insurance Act?

That was a key question posed by Sen. Thomas Carper, D-Del., to Brian Roseboro, undersecretary for domestic finance with the U.S. Treasury Department, during last week's Senate Banking Committee hearing on TRIA.

Based on the available evidence, Mr. Roseboro replied, there appears to be several dynamics.

First, he said, the insurance industry has not developed the ability to model terrorism risk and adequately price the coverage.

Second, from the policyholder's perspective, there is an issue of risk perception. Some businesses, he noted, still believe that terrorism insurance is too expensive, while those outside major metropolitan areas may not believe they have a significant exposure.

Third, Mr. Roseboro said some may believe that help will be available from the government, whether or not they have insurance, in the event of another terrorist attack.

Steve Brostoff

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.