The economic consequences of TRIPRA's expiration at the end of 2014 could be severe. Adequate insurance coverage, including terror coverage, is an important component for transacting commerce. If we move into 2014 without an extension of the law, carriers will reduce, limit, or exclude terror coverage altogether from contracts, which would likely have profound impact on the way industries of all kinds conduct business.

What issues would a TRIPRA delay cause?

The longer it takes to renew TRIPRA, the more likely companies will begin to run into practical business issues, such as securing financing. In many cases, companies in industries such as construction and real estate need terror insurance to obtain financing from lenders.

Uncertainty would be a key issue. The magnitude of a terror event can be so large that it is not feasible for any carrier to assume the risk. The losses associated with a nuclear, biological, chemical radiological (NBCR) event would be catastrophic. Reinsurers may be able to offer some capacity but not nearly enough to backfill what the law provides for. Many large companies across many industries rely on the insurance protection offered by their carrier.

If we can remove this uncertainty, companies can focus attention on their core business, grow and add new jobs. That would be good for many towns and cities across America and for the economy in general.

How Do You See the insurance industry continuing to provide terrorism cover without TRIPRA?

The terrorism insurance market would end up looking very different without TRIPRA. Insurers would pay close attention to aggregation in urban markets. How many companies could they insure in a large or mid-sized city, without taking on unacceptable levels of risk? Very few, as insurers are required to have enough capital to assume their risks. It would not take much exposure in a terror event to produce an outcome that goes beyond their capital adequacy.

In most cases, insurers would not be able to cover as many customers as they do with TRIPRA in place. Premiums would certainly be higher than they are today. Many companies would end up not being able to secure the terror coverage they truly need. This is particularly true for the workers' compensation line of business.

How could the workers' comp market be affected in a scenario in which TRIPRA were not renewed, and an attack affected a large employee population at a number of companies?

Offering workers' compensation coverage would be challenging with regard to terrorism exposure. Terrorism cannot be excluded under a workers' compensation policy and there is no policy limit to cap the accumulation of exposure to a loss. Without TRIPRA renewal, the workers' compensation market will be disrupted in a meaningful way. The impact of certain attack types on U.S. workers would be decimating to their families, their companies, their cities and even our country. In the absence of TRIPRA, a large portion of this business would either be in the assigned risk pools of the various states or be self-insured.

What changes in terrorism cover has AIG seen over the past few years? Has this market become more competitive?

Yes, the market has become more competitive and the cost of terrorism coverage has dropped over the last seven years. The TRIPRA backstop has provided the impetus for carriers to prudently write the coverage and assist their customers in improving their risk profile. We all benefit when customers harden their assets and improve the protection of their workers and properties from a potential attack. The insurance industry plays an important role in helping companies do that.

Why is there a delay in renewing the coverage if it is this critical?

Fiscal discipline is a strong theme today in Washington, with debt and deficits a growing concern. There is closer scrutiny of legislation that may be viewed as a corporate subsidy. TRIPRA is not a subsidy. We also understand that movement on the bill is likely, but not until 2014. Some legislators think there is time to renew the law as it doesn't expire until the end of next year.

Regardless of the point of view, the issue is that the impact of delaying TRIPRA renewal is already being felt in the insurance industry, in terms of how we conduct and renew business—and that will increase in the months ahead.

Are you seeing any trends among carriers to institute sunset clauses as we count down to TRIPRA expiration?

Our customers are anxious because of the uncertainty. They recognize the position the insurance carrier is in when deciding what coverage to provide, what limit to provide and the premium to charge. This uncertainty makes planning and executing business plans difficult. TRIPRA has been very successful in its purpose and to allow it to sit in limbo makes little sense.