Report from Governmental Affairs

Third Time Around


But six years later, ongoing concerns about terrorism still threaten the availability of insurance, says the ABA, which is urging Congress to reauthorize the act for a second time.

After the 2001 attacks, insurers evaluating their exposure began excluding coverage for terrorist acts. The ripples of these actions were felt throughout the economy—the effect on the commercial real estate market was particularly unsettling—until Congress stepped in to provide a federal financial backstop for losses arising from large-scale terrorist attacks. That action helped to ensure the continued availability of terrorism insurance.

Although Congress envisioned the act as a temporary three-year measure to give the insurance industry time to make adjustments in terrorism coverage, federal lawmakers modified and extended the act for another two years in 2005 when it became apparent that terrorism insurance would not be available without federal support. The extension is scheduled to expire in December unless Congress acts again.

The ABA’s policy-making House of Delegates adopted a recommendation by the Tort Trial and Insurance Practice Section in February that calls on Congress and the executive branch to support legislation to promote the availability of terrorism risk insurance.

“Because of the unpredictability of a terrorist attack and the amount of losses that might be caused by such an attack, insurers have an incentive to not insure terrorism events at all, or to charge a high premium to reflect the unpredictability, where they have the regulatory flexibility to do so,” states the section’s report to the House supporting the recommendation.

THE FEDERAL BACKSTOP

The ABA’s position was outlined by Peter J. Neeson and Francine L. Semaya in a statement submitted in April to a subcommittee of the House Financial Services Committee. Neeson of Philadelphia chairs the Tort Trial and Insurance Practice Section, and Semaya of New York City heads the section’s Task Force on Federal Involvement in Insurance Regu­lation Modernization.

“TRIA has helped stabilize the price of terrorism insurance by reducing the amount of risk to be borne by insurers,” said Neeson and Semaya in their submission to the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. “By providing a backstop, TRIA improved the ability of the market to respond to this risk.”

Bills to reauthorize the Terrorism Risk Insurance Act were expected to move quickly through Congress before the end of this year’s session. Debate is continuing on several issues, however, including the length of time for which the act should be extended. The ABA favors long-term or permanent reauthorization. The association also supports provisions that would bring coverage for nuclear, chemical, biological and radiological attacks within the scope of federal protection.


Rhonda McMillion is editor of Washington Letter, an ABA Governmental Affairs Office publication.


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