CRAPO STATEMENT AT TRIA HEARING
February 25, 2014
WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing titled “Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Part II.”
Thank you, Mr. Chairman. This is the Committee’s second hearing on the reauthorization of the Terrorism Risk Insurance Act (TRIA). At the first hearing in September, we heard testimony about the difficulties associated with modeling and underwriting terrorism risk. These difficulties were first highlighted in the months following September 11th when terrorism risk insurance became unavailable.
The Terrorism Risk Insurance Act was passed at the time to address what was thought to be a temporary inability for private insurers to insure against terrorism risk. While that temporary inability to insure has abated and private capital can take on more of the exposure to terrorism, the need for TRIA still exists.
Terrorism is difficult to predict, and terrorism risks may be highly correlated, making it a challenge for insurers to diversify their risk. The backstop provided by TRIA allows insurers to more accurately manage their risk, and leads to increased capacity and availability of coverage. However, we can and should continue to promote private capital ahead of the government backstop.
At a November hearing in the House Financial Services Committee, a representative of a global reinsurer stated that the reinsurance industry has the ability and willingness to expand capacity. She commented that an increase in the industry retention and an expansion of the coinsurance level could be positive modifications to the TRIA program. Others have suggested raising either the amount of the company deductible or the $100 million loss trigger.
I look forward to hearing the witnesses’ testimony on how we can adjust these levers in a way that accomplishes the goal of increasing taxpayer protections, while continuing to provide an adequate backstop to the market.
While changes to the TRIA program levers are necessary, reauthorization gives us the chance to examine other changes that might make the program better. For example, some industry participants suggest that the process for event certification may be improved. One way to do that would be to require the Treasury Secretary to make the certification within a given number of days following a terrorist event.
However, since insurers typically pay claims almost immediately, any timeline may result in unnecessary delays that may conflict with state law. I am interested in the thoughts of our panel on how adjusting certification might impact the TRIA program, as well as any other areas of the program that could benefit from clarification.
Since the last hearing, Chairman Johnson and I and our staffs have continued to work toward developing a bipartisan approach to reauthorizing this program. We both agree that TRIA reauthorization is an important priority for the committee. I welcome his continued partnership in developing an extension to the program.
In order to limit the economic and physical impact of any future terrorist attack on the U.S., we must get TRIA right. I am hopeful that today’s hearing will help us move our discussions forward as we look toward a markup.