The law [TRIA] works in favor of the commercial and private interests and the insured public and the country’s economy in general.
CRITICAL ISSUE REPORT
Independent agents must keep the pressure
on Congress to continue TRIA
By Emanuel Levy
|
The law [TRIA] works in favor of the commercial and private interests and the insured public and the country’s economy in general. |
It is a chastening thought that the world appears to be moving in a direction that may make this opening of the 21st century the “Decade of the Terrorist.” Terrorism is certainly not a new phenomenon, even in the United States, where tolerance of disparate ideas has been the hallmark of governance. Political and social unrest, however, unleash the kind of pathology that creates murderous reactions. It has copycat potential, of course, but what is happening today defies any simple or single explanation and creates a clear and present danger to lives and properties that is well beyond anything previously encountered.
And, insurance plays a central role in this environment—as it does in every aspect of life. I recall, years ago, interviewing candidates for editorial positions, who expressed doubts about becoming involved in insurance because it was a “boring” subject. I always said to them, and I say it now to anyone who expresses such an opinion, nothing can be further from the truth.
Nothing has galvanized the insurance business about the threat of terrorist actions more than what happened on September 11, 2001. It has become a cliché to make that observation, yet it is central to the current effort to extend the life of the Terrorist Risk Insurance Act (TRIA) of 2002. The act will expire—or in legislative parlance, “sunset”—on December 31, 2005. While that may seem long enough away to obviate the need for speed, the reality about insurance dictates otherwise. That clear fact has been emphasized by insurance trade association spokespersons and others in their contacts with members of Congress. They point out that new coverages negotiated with commercial insureds, will extend into 2006 and beyond so that the federal “reinsurance” or backup must be in place.
A 96-page report, commissioned by the American Insurance Association, the National Association of Mutual Insurance Companies, The National Council on Compensation Insurance, the Property Casualty Insurers Association of America, the Reinsurance Association of America, and the Financial Services Roundtable, concludes that “even absent another major terrorist attack, U.S. gross domestic product (GDP) may be $53 billion (0.4%) lower, household net worth may be $512 billion (0.9%) lower and roughly 326,000 (0.2%) fewer jobs may be created because of the drag produced by the lack of a federal terrorism insurance backstop.” The report is the work of a widely respected research organization, the Analysis Group, Inc. Among the conclusions of the report is the observation that, without TRIA, “an attack roughly the size of the 9/11 attacks would mean the loss of tens of thousands of jobs due to reduced insurance coverage. In addition thousands of additional commercial bankruptcies could ensue.”
There are definite legislative moves at this writing, with HR 4634 passed by the House Financial Services Committee and the major insurer and producer trade groups, in their usual fashion, pressing the House to act on the bill as quickly as possible before this congressional term ends. There are 160 House members who are co-sponsors of the bill, which, like a Senate counterpart, calls for a two-year extension. While industry leaders have positive vibes that the bill will be enacted before deadlines set in, there is no assurance that it will happen. Business interests are also strongly supporting the measure. A very interesting and significant development is that there has been a tremendous increase in the number of insureds who have purchased TRIA products. Initially, the number was that 80% of commercial businesses decided against the coverage. That now has been reduced to 40%, according to a spokesperson for the Property Casualty Insurers of America (PCI); Patricia A. Borowski, senior vice president of the Professional Insurance Agents (PIA National); and a recent study report by Marsh.
So with all this industry power, the individual agent or broker just has to sit back and enjoy the results? Wrong. Joseph Annotti, an official at PCI and Borowski were emphatic in asserting that independent agents and brokers throughout the country can play a key role in supporting the Washington, D.C. staff of these trade associations by making direct contact with their own representatives and senators to make it clear that this is an industrywide enterprise.
Borowski said that while l60 co-sponsors was a good number, it would be better if many more legislators got on board, and that personal contact, e-mail, letters, or phone calls from involved constituents stressed that enactment was essential to the industry, insureds, and the economy at large. The PIA National official also suggested that, where possible, agents and brokers suggest to their customers that they contact legislators to express their own concern for the extension of TRIA as a vital safeguard of their own businesses.
If the increase in the number of TRIA insureds is accurate, as this writer believes, most of the credit for the achievement must go to the agents and brokers and their work with clients. That’s a major achievement. It can continue as long as the law continues to offer the backup. It is not only for the protection of commercial insureds victimized by terrorist attack. The law works in favor of the commercial and private interests and the insured public and the country’s economy in general. That vital backup safeguards the capital and surplus of insurers so that they remain viable for all their liabilities. The depletion of capital and surplus puts insurers in stark danger as evidenced by what happened to many small insurers as a result of Hurricane Andrew. That, of course, is axiomatic.
Another reason for the increase in the purchase of TRIA coverage, according to Borowski, is the pressure from banks and other lenders that have become aggressive as a means of protecting their own funds from the uncertainty of terrorist attack on the properties covered by mortgages and other instruments they issue.
The PIA National executive also suggested continued dialogue between brokers/agents and their companies to seek updated instructions on claims handling as well as options available on a line-by-line, class-by-class basis. She said it is important to understand all of the elements so that the information could be passed on to insureds.
There are many complexities, including the rules and regulations handed down by the U.S. Treasury Department, which has overall supervision of the entire program. Too much is at stake to leave specific knowledge and directions to chance.
The depth of this problem goes far beyond brief commentary, which can only highlight dilemmas and suggest continuous oversight and the blending of responsibilities of those intrinsically involved. There is consensus from those who monitor security that terrorists will strike again somewhere in the United States. We must not become paranoid, but we must always seek to thwart diabolical attacks. *
The author
Emanuel Levy, editor of Insurance Advocate from 1958 to 2004, has appeared as a speaker at meetings and seminars across the country and is the recipient of many awards and citations. He served on the faculty of the College of Insurance for the annual orientation course for incoming insurance regulators and staff members, wrote insurance articles for the Economist Magazine and for many years was insurance section editor of the World Book Encyclopedia’s annual historical review book.