The London bombings may have provided a wake-up call, but insurers could also be experiencing restless nights fretting over the fate of the Terrorism Risk Insurance Act (TRIA) of 1992.The future of TRIA, a safety net that has provided some protection against the financial fallout from a terrorist event, is uncertain. The law, which was enacted in November of 2002 and is in effect until December 31, 2005, provides a federal financial backstop for the insurance industry for claims from certain terrorist attacks.

A recent Treasury Department report recommends that the current program not be extended and that the federal government should assume a lesser role in insuring terrorism risks.

But insurance industry groups are calling for continued federal government involvement.

During testimony before Congressional committees on July 27, leaders from several insurance associations asked that the federal government extend its financial protection against terrorism beyond the scheduled December 31, 2005 TRIA expiration.

Testifying on behalf of the American Insurance Association, Washington, D.C., Jason Schupp, vice president and general counsel for Zurich North America, Schaumburg, Ill., said, "The enduring risk of catastrophic terror attacks on U.S. soil leads to a continuing need for an effective insurance mechanism beyond December 31, 2005-a mechanism that must be based on the reality of the marketplace, not the hopes or theorists."

The Property Casualty Insurers Association of America (PCIAA), for example, called for continued high-level federal support to finance and bear the shock of an attack-while, at the same time, shift some of the risks over time to the private market.

"The threat of terrorism is not likely to subside within two years and without incentives in place, and the private market is not likely to be able to fill the gaps in coverage that will be left without federal government participation. It is extraordinarily important that this issue is addressed this year. Without an effective replacement for TRIA the economy will suffer," said Ernie Csiszar, president and CEO of PCIAA.

PCIAA's market-based approach focuses on bringing additional capacity to the terrorism insurance marketplace by employing private market tools coupled with the certainty that can only be provided by federal government backing. The solutions would spur insurers to enter the market, and enable insurers to share or "buy down" their risk while encouraging greater private capital participation in the market.

A number of bills addressing the extension of TRIA have already been introduced in Congress-but none of these are likely to be passed, according to Scott Duncan, director of public affairs for the PCIAA. However, representative Richard Baker (D, La.) is expected to introduce a bill in September that is likely to be approved, Duncan predicts. The bill is expected to offer some federal government protection to insurers while lowering the financial exposure to taxpayers, Duncan says.

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