CFA To Congress: Rushing to Renew Terror Insurance Law Will Harm Taxpayers

July 1, 2004
J. Robert Hunter, 207-864-3953
Travis Plunkett, 202-387-6121

Washington, D.C. - The Consumer Federation of America today urged Congress to reject efforts by the insurance industry to rush through a renewal of the terrorism insurance law before the Treasury Department finishes a mandated study next year on how well the law is actually working. In a letter to Congressional leaders, CFA expressed concern that the unnecessary extension of the law could force taxpayers to pay for terrorism losses that the insurance industry could otherwise afford and stifle the development of a vibrant private market for terrorism insurance.

"The insurance industry sold the terrorism insurance law as a temporary fix for a short term problem, the lack of reinsurance for terrorism losses in the wake of 9-11," said J. Robert Hunter, CFA's Director of Insurance and a former Federal Insurance Administrator and Texas Insurance Commissioner. "In a brilliant bait and switch maneuver, the industry now wants Congress to again put taxpayers on the hook for billions of dollars in terrorism losses without ever taking a hard look at whether insurers could handle these losses themselves."

 The Terrorism Risk Insurance Act (TRIA) is a three-year program in which the federal government covers 90 percent of all terrorism-related insurance losses (up to $100 billion a year) after individual insurance companies pay an initial deductible. Insurers, who are required to offer terrorism coverage, must repay very little or no assistance. The act ends on December 31, 2005 and mandates that the Department of the Treasury complete a study on how the law is working by June 30th of next year. Legislation that would immediately extend the law for two additional years has already been introduced in the House (H.R. 4634) and is being contemplated in the Senate.

 The insurance industry has claimed that Congress must disregard the Treasury study because some terror insurance policies will soon be written that extend beyond the expiration of TRIA.

 "Members of Congress should see right through this bogus excuse for blindly extending the law as is," said Hunter. "In fact, the industry has already begun to address this issue by convincing a number of states to allow them to exclude terror coverage in policies that extend beyond the date that the law expires, if that occurs. If TRIA expires, these exclusions would be in force."

 In April, CFA released a comprehensive review of TRIA, which concluded that the law would not be necessary after 2005 to ensure the availability of affordable terrorism coverage for most areas of the country, with the possible exception of nine cities, and should be allowed to expire. CFA found that the ability of the private market to insure against terrorism is enormous and growing, insurer profits are very substantial and the financial condition of these companies overall is rock solid. Indeed, the property/casualty insurance industry just reported first quarter 2004 results that were astonishingly profitable, with retained earnings, called "surplus", of $368.7 billion, up $78.1 billion from last year. To put the magnitude of these earnings in perspective, the after-tax insured cost to the industry of the September 11th attacks was about $20 billion.

 "CFA's research clearly indicates that the insurance industry is more than ready to stand on its own two feet and that taxpayer back-up should end," said Hunter. "Almost three years after the tragic terrorist attacks of 9-11, insurers are reaping record profits and are in a strong position to pay for much more in terrorism losses."

 CFA expressed concern that the proposed TRIA extension would continue to give away federal reinsurance without charging insurers a premium for the coverage. It is virtually impossible for private market responses to compete with free reinsurance offered by the government, the cost of which is borne by taxpayers.

 "Insurers are in a big hurry to extend TRIA because they know that the evidence so far shows that a renewal is unnecessary," said Hunter. "It is hard to blame the insurance industry for wanting to continue free reinsurance. What American family wouldn't want free auto insurance?," he said. "But the Treasury Department's objective assessment of the market, if it is not preempted, will almost certainly show that the industry can afford to cover far more terrorism risk than TRIA requires," he said.

 CFA is a non-profit association of 300 organizations that, since 1968, has sought to advance the consumer interest through research, advocacy and education.