Here on Sept. 11, the sixth anniversary of the terrorist attack that supposedly altered America forever, some things never change. Washington remains shortsighted, as well as penny wise and pound foolish, as the latest developments in the debate over whether to extend the Terrorism Risk Insurance Act demonstrates.
While members of Congress argue among themselves and with the White House over truly important matters such as the length of TRIA's renewal, as well as whether insurers should be forced to take on nuclear, chemical, biological and radiological risks, a relatively trivial cost estimate by the Congressional Budget Office has Washington scrambling.
Seems CBO says TRIA could cost Uncle Sam $8.4 billion over 10 years, even if there is no terrorist attack. That's because under House rules put in place by Democrats when they took control of Congress this year, any law authorizing the expenditure of federal funds must include some way to offset that anticipated cost--either via new revenues or by cutting existing program budgets.
Raise taxes or cut services? Politicians rarely can bring themselves to take either step, no matter how important the cause.
After all, God forbid we should raise taxes in the middle of a war. That would mean the terrorists won, correct?
This debate is total nonsense. The cost of the war in Iraq--whatever your personal or political views on it--is virtually open-ended and not subject to any of the budgetary speed bumps imposed on programs that are just as important to our national security, such as TRIA. All it takes is one attack to devastate our insurance industry and the economy it helps to keep running.
Are we really going to allow a piddling $8.4 billion over 10 years to trip up a federal reinsurance backstop that in reality will cost taxpayers nothing unless there actually is an attack?
I realize I am tilting at windmills. Technically, Congress doesn't have a choice. The law is the law. But Washington better figure out a way to get this done and fast, because we're coming up on 90 days before TRIA's expiration, and insurance policies for next year are already being affected.
The last thing this economy needs in the wake of the sub-prime mortgage crisis, the halt in job growth and the rocking and rolling stock market is more uncertainty in the commercial insurance market.
(To read more about this issue, click here to check out Dave Postal's news story.)
Comments (2)
Sam says: "A federal reinsurance backstop that in reality will cost taxpayers nothing unless there actually is an attack"
I have had homeowners insurance for over 40 years and never filed a claim. Should I get my money back because I filed no claims. Is it true that I bought nothing all these years?
Insurance is insurance. There is terrorism coverage in place right now. Had premiums been charged, CFA estimates that the Treasury would have $6 billion in it in reserve for the next terrorist event.
There is a cost to taxpayers--lost premiums. Your claim of 'insurance should be free until an insured has a claim' is remarkable.
SAM RESPONDS:
Actually, Bob, I could live with a federal terrorism reinsurance facility that charges premiums to carriers, just like the setup in the United Kingdom during all those years when IRA terrorists were raising havoc, and now with Islamic terrorists afoot. Could you, or are you against ANY federal involvement in the terrorism re market?
Not everyone would be able to get terrorism coverage if Uncle Sam packed up and went home to Washington. Do you think the Empire State Building could get terrorism coverage? Or any major building in Manhattan, downtown Chicago, L.A., Washington, etc., with a federal backstop. You are dreaming, sir!
Also, bottom line, I believe we are in indeed in a War on Terrorism, and war risks have always been excluded from the private insurance market, as well it should be. There's a big difference between a hurricane and a nuclear or chemical device being set off by a terrorist, don't you think.
This risk should not be covered by the private market, period, in my view, but if it must, TRIA is the way to go. If you want to modify it to pre-fund with premiums, fine. That's not a bad idea--and actually was endorsed by then AIG CEO Hank Greenberg way back after 9/11. But beyond that?
Posted by Bob Hunter | September 12, 2007 12:22 PM
Posted on September 12, 2007 12:22
Sam,
CFA supports adding NBCR to TRIA, but not all the other stuff like group life and domestic terrorism, both clearly not required. In fact, a TRIA that covered only NBCR over a large industry deductible, say $100 billion, would make sense.
Posted by Bob Hunter | September 13, 2007 1:30 PM
Posted on September 13, 2007 13:30