February 28, 2007
Opening Statement of Chairman Chris Dodd - Hearing on "Examining the Terrorism Risk Insurance Program"Earlier this year, upon assuming the chairmanship of this Committee, I stated that the Committee should focus on two overarching goals –maintaining and improving our nation’s security and prosperity. The subject of today’s hearing—namely, a public-private partnership, created by the Terrorism Risk Insurance Act of 2002, to protect American workers, jobs, businesses and infrastructure from future terrorist attacks – is in my view critical to both the security and prosperity of our nation. This morning, the Committee will hear testimony from policyholders, insurers, and regulators—those who have first-hand knowledge of the challenges associated with buying, selling, underwriting, and regulating terrorism risk insurance. I would like to thank the witnesses for appearing before the Committee and after some opening statements from members of the Committee, we will turn to receive their testimony. Many of my colleagues on the Banking Committee have worked tirelessly for a number of years on this issue. We have collaborated on a bipartisan and bicameral basis to enact both the Terrorism Risk Insurance Act—known as TRIA—in 2002 and an extension of the TRIA program in 2005. In 2002, the Senate voted by an overwhelming margin of 86 to 11 to pass TRIA. In 2005, the Banking Committee under the Chairmanship of Senator Shelby reported by a unanimous vote, legislation to extend TRIA for an additional two years. The bill was later approved by the full Senate -- also by a unanimous vote. I think it is important to take a moment to talk about the importance of TRIA and why I believe we must act again to establish a more permanent federal initiative to provide coverage from potential terrorist attacks. In the aftermath of 9/11, the market for terrorism risk insurance disappeared and the American economy dealt with a great deal of uncertainty. We repeatedly heard from businesses, large and small, from labor unions, from manufacturers, from builders and lenders, from not-for-profits like universities and hospitals, and from insurers, about the need for the federal government to help stabilize the market and ensure the availability of affordable insurance against the risk of future terrorist attacks. The critical U.S. industry sectors were in dire need of terrorism insurance to obtain credit, loans, and investments necessary for their normal business operations. Without terrorism risk coverage, the economy faced instability and dislocation– which is exactly what the terrorists hoped to accomplish. The policyholder community and insurers together called for a response to the 9/11 attack on our nation and our nation’s economy. Congress listened, and we acted in 2002 – creating the Terrorism Risk Insurance Act (TRIA). TRIA created a three-year program, the Treasury Risk Insurance Program located within the Department of Treasury, establishing a federal backstop against catastrophic losses in the property and casualty insurance marketplace. In December 2005 a two-year TRIA extension was signed into law. The provisions of that bill will expire on December 31st of this year. Under TRIA, the federal government shoulders a share of the financial risk of future attacks. This burden-sharing makes sense – these attacks are against us as Americans, against our democracy, our way of life. The attacks are aimed at the American public, and therefore require a public role in addressing the threat. But TRIA also requires that the private sector bears a significant financial responsibility and helps to impose market discipline in the claims and underwriting processes. In the past five years, we have heard an over-whelming response from policyholders across the country –TRIA works. According to a recent study by the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, about 50 percent of commercial enterprises through 2005 have purchased terrorism insurance. According to Marsh, Inc. and cited by the President’s Working Group on Financial Markets, take-up rates have increased from 23 percent in the beginning of 2003 to 64 percent at the end of 2005, while the price of terrorism insurance has declined. The median cost of property terrorism insurance was 25 percent lower in 2005 than the 2004 rate. These trends demonstrate that TRIA has achieved its primary goal–continued availability and affordability of insurance against future terrorist attacks. What we have seen, and what many of our witnesses will explain to us today, is that the re-emergence of limited terrorism risk insurance would not have happened without the enactment of TRIA. We will also hear that the private sector does not have the capacity to provide affordable terrorism risk insurance on its own without the existence of a federal backstop. In a 2005 Treasury Department survey, nearly 50 percent of insurers said that they do not plan to write terrorism coverage after TRIA expires. So the question before us today is, do we do nothing to financially protect our country against future terrorist attacks? Do we provide another short-term extension to meet current market needs? Or, do we create a long-term solution for the security of our people and of our economy? I firmly believe that doing nothing is simply not an option. The world has fundamentally changed since 9/11. Nearly all of the data and the experts say that there is no reason to think that private forces alone could and would provide against this very unique risk. We have every reason to believe that a federal role for terrorism risk insurance coverage is needed for the foreseeable future. Several industrialized countries have already recognized this fact. The UK, France, Germany, and others have created permanent government programs to manage terrorism risk. We know from the tragic attacks in London, Madrid, India, Indonesia, and elsewhere, that terrorism has increased since 9/11. In a world of more terrorism, we should be providing more security, not less. Our nation has been fortunate enough not to suffer the tremendous loss of life or destruction of property that we endured on September 11, 2001. But by no means, has the political climate, either domestically or abroad, returned to a sense of normalcy. We are engaged in a violent conflict in Iraq and we have seen despicable terrorist attacks abroad in Europe and elsewhere. The threat of terrorism is not simply a short-term threat, it has the potential to be a long-term reality. As a result, I believe that we must act once again to ensure that stability, availability, and affordability remain in the market for terrorism risk insurance. But I don’t believe we should continue to extend the program for short periods of time – causing uncertainty and confusion in our economy. A more permanent federal commitment is, in my view, not only something that we should do, it is something that we must do. I am committed to finding a solution that will address the long-term security needs of our people and of our economy and ensure that our nation is best prepared to deal with future terrorist threats. I believe that one of the most fundamental obligations of our national government is to provide security and opportunity for our citizens. With the expiration of TRIA approaching once again, it is important to gather information about the current market for terrorism risk insurance, to assess the impact that TRIA has had in this marketplace, and to develop ideas for creating a more permanent terrorism risk insurance. Today’s witnesses offer an extraordinary range of expertise and experience that will be very useful as the Committee undertakes this important effort. I thank them for their attendance this morning. More than five years after the tragic events of 9/11, we continue to see a need to provide a federal backstop to protect our people, businesses and critical infrastructure from future terrorist attacks. We have heard repeated dire warnings that terrorism will return to U.S. soil. We must be prepared against this threat. In my view, providing insurance against terrorist attacks, which allows our economy to function, is a critical part of our national preparedness. And, I believe that by working together, we can establish a more permanent solution.
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