Washington==An increasingly short schedule will make it unlikely that Congress will create a new, long-term solution to the problem of terrorism risk, according to former D.C. Insurance Commissioner Lawrence Mirel.
Instead, Mr. Mirel believes that a new program could be established at the state level to help protect against losses that overwhelm the insurance industry, from both natural and man-made catastrophes.
"The issue is what's going to happen between now and the end of the year," said Mr. Mirel, who now serves as the chair of the insurance regulatory practice at the law firm of Wiley, Rein and Fielding in Washington D.C.
Effectively, he said, there are three possible solutions: Congress will do nothing and allow the current Terrorism Risk Insurance Act to expire at the end of the year; lawmakers will extend the TRIA legislation as it currently exists; or they will enact some degree of change to the program.
Given the crowded Congressional calendar, however, he felt the prospects of a new or significantly changed TRIA program being established are growing increasingly dim.
"Every day that goes by, it is less likely" that Congress can craft a new type of program to deal with terrorism risk, he said.
Two major proposals for a long-term solution that are being discussed are a system based on Britain's Pool Re and the "silo approach" which would base the federal backstop levels on the insurability of individual risks.
Mr. Mirel said "there's always been some interest" in Congress of adopting a Pool Re approach, but he doesn't know if there is enough support there to push legislation through quickly.
A Pool Re-based program would be simpler than it has been made out to be, he noted, while the "silo" approach, which would allocate coverage by individual lines, is more complex.
"It's a bit of a complicated system," Mr. Mirel said of the "silo" concept, although he acknowledged it "has some good points to it."
With the prospects for a long-term solution from Congress becoming more remote, Mr. Mirel suggested that the states could take matters into their own hands and establish a program to help cover large-scale catastrophic losses regardless of their origin. Although such a program is "nothing that is going to happen quickly," Mr. Mirel said state representatives are beginning to at least consider the idea.
Several state insurance regulators, including commissioners from the large states of California, New York, Texas and Florida, will be discussing the issue at an upcoming conference in California, he noted.
A program crafted by the states would likely have to be established through a partnership outside of the National Association of Insurance Commissioners, where progress on the issue could be bogged down by the concerns of smaller states, he pointed out. Given the importance of larger states as insurance markets (California by itself is the world's fourth-largest insurance market), Mr. Mirel said that larger states can and should take matters into their own hands when it is appropriate.
"I've always been of the belief that the larger states need to do more outside of the NAIC," he said.
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