Washington–An American Academy of Actuaries subgroup has added its voice to the chorus calling for a permanent solution to the problem of insuring terrorism risk.
The Academy's Terrorism Risk Insurance Act subgroup said in a statement that the "magnitude of potential insurance claims due to terrorist events makes permanent federal legislation necessary in order to make terrorism coverage widely and readily available."
This conclusion was based on an analysis of the potential impacts of a terrorist attack and how insurance companies could react to sudden changes in their perceived exposure to catastrophes.
"Because of the potential for terrorist attacks that cause very large losses, the subgroup does not believe there is any strategy that could develop sufficient terrorism insurance capacity without some form of legislation to limit insurer liability should these events occur," the subgroup said in its statement, which was sent to congressional leaders and Treasury Secretary John Snow.
Federal involvement is needed in any long-term solution to the terrorism insurance problem, the subgroup said, because of the enormous size of potential losses stemming from a terrorist attack.
"Terrorists with access to nuclear, biological, chemical and radiological weapons of mass destruction have the potential to cause single-event catastrophic insured losses many times the size of the total insured losses from Sept. 11, 2001," the subgroup said in its statement.
It added that, "Modelers now estimate that terrorists with such weapons could cause insured losses ranging up to about $700 billion, depending on weapon type and location."
Although the subgroup acknowledged that it had not reviewed the current proposals for legislation to extend TRIA, it noted that "certain key results of the subgroup's analysis are relevant" to the debate on those bills.
The house TRIA extension legislation, H.R. 4314, has been passed by the Financial Services Committee and is pending.
A markup on the bill has not yet been scheduled, according to committee spokesman Terry Shawn.
The House legislation uses what is being called the "silo" approach, establishing different deductibles and thresholds for government participation for different lines of insurance and would also include group life.
The White House has expressed strong opposition to expanding the TRIA program to include group life and has supported the concept of significantly increasing the amount of damages that would have to be borne by the insurance industry before the federal government became involved.
Senate bill, S. 467, was passed on Nov. 18. It does not include group life and is more in line with the administration's thinking.
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