CRAPO STATEMENT AT TERRORISM RISK INSURANCE HEARING
September 25, 2013
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”:
"Thank you, Mr. Chairman.
"I welcome each of our witnesses today to this important hearing on the federal Terrorism Risk Insurance Act (TRIA).
"The program’s initial passage was in large part due to the inability of businesses to acquire terrorism coverage in the aftermath of the attacks of September 11, 2001.
"Since then, the program has been reauthorized by Congress two more times, each time with changes that scaled back the exposure to the federal government and taxpayers.
"With the current program set to expire at the end of 2014, it is appropriate for us to examine how well the program is working, and how else we might increase private sector participation in the insurance and reinsurance markets.
"Terrorism risk, by its nature, is difficult to predict.
"The size, severity and frequency of attacks are hard to model. They also may be highly correlated, making it challenging for private insurers to diversify their risk.
"One of the purposes of passing the original legislation was to give the market time to find innovative solutions to these problems.
"I am interested in hearing from the witnesses’ perspectives on how the private market has evolved in the twelve years since the initial passage of TRIA.
"Getting terrorism risk insurance right is essential in order to limit the economic and physical impact of any future terrorist attack on the U.S.
"A properly balanced terrorism risk insurance program can increase the nation’s resilience to terrorism.
"However, a program that is too heavily reliant on federal support can deter the private market from coming up with cost-effective solutions.
"One of the challenges associated with any government insurance is getting the pricing right.
"In TRIA, there is no up-front charge to private insurers for the government reinsurance and backstop, only post-event cost sharing.
"Does the current approach make the most sense for taxpayers?
"Mr. Beshar’s written testimony mentions the business deductible, the aggregate loss threshold, and business co-insurance as a few of the policy levers we can adjust that may help to better protect taxpayers from shouldering private sector losses.
"I look forward to the thoughts of the panel as to what impact these changes would have on the willingness of insurers to underwrite terrorism risk.
"I also am interested in hearing how well the reinsurance market is developing.
"Does the current program dampen the reinsurance market’s incentives to innovate and find new ways of offering coverage?
"As I mentioned previously, each reauthorization has put more private capital in front of the government backstop.
"Currently, the federal government would recoup any TRIA payments up to $27.5 billion.
"This industry retention level allows the taxpayer to recover TRIA payments through an industry-wide assessment on property casualty policies, and was last changed in the 2005 reauthorization.
"Should that amount be increased?
"Lastly, we should look at the approaches that other countries have developed to the challenges presented by terrorism risk.
"For example, most developed countries charge the insurance industry up front for reinsurance.
"As it has been six years since we last studied this issue in depth, we now need to re-examine this program in detail.
"I look forward to hearing the witnesses’ testimony and their insights into these important policy issues."