Yesterday the Consumer Federation of America (CFA) released a statement that suggested a renewal of the Terrorism Risk Insurance Act (TRIA) may not be necessary given the near-record industry surplus of nearly $600 billion. Today, the Insurance Information Institute responded by emphasizing the stability TRIA continues to provide.

“Private-sector insurers have difficulty pricing terrorism risk insurance because neither the prospective frequency nor the potential cost of man-made, intentionally violent acts can be accurately assessed before they occur,” stated Robert Hartwig, president of the I.I.I., and an economist who has studied the insurance ramifications of the September 11 attack.

The Property Casualty Insurers Association of America also recently spoke out about TRIA’s renewal, emphasizing the importance of its renewal for the stability of the P&C industry.

The release from the CFA quoted J. Robert Hunter, CFA Director of Insurance and former Texas Insurance Commissioner and Federal Insurance Commissioner as saying, “The current industry surplus of nearly $600 billion dwarfs the $24 billion (in 2013 dollars) of insurer losses from 9/11. The industry can easily afford the losses of up to $100 billion that the current act would cover.”

The CFA also cited what it called a “key measure of the safety and soundness of the property/casualty industry,” which is its ratio of net written premiums to policyholder surplus. In recent years, because of the increase in weather-related catastrophic events and fear of terrorism, the ratio is considered to have dropped from 2.00 to 1.50, the release stated. The CFA said the industry’s ratio stood at only 0.77 at the end of last year, “even the after-tax effects of $100 billion of industry losses from an almost unimaginable terrorist event would only increase this ratio to an ultra-safe 86 percent.”

I.I.I.’s Hartwig responded to these assertions: “The American Academy of Actuaries years ago estimated that hundreds of billions of dollars in insured claim payouts could be generated by a single terrorist attack in one city, so there is a role for the federal government to play when it comes to sharing in the very substantial risks the nation faces. Strangely, the CFA presumes to have more knowledge about the likelihood and cost of future terrorist attacks than the insurance industry and federal government combined.”

Enacted in November 2002, TRIA established a risk-sharing structure that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The current iteration of TRIA, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), expires at the end of 2014.

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