From the May 2007 issue of Treasury & Risk magazine

What Makes Sense For TRIA?

Despite five tumultuous years of hurricanes, corporate meltdowns
and terrorist attacks, the insurance industry finds itself with sufficient capacity in most every line of business. It is certainly a tribute to free-market forces and competition as new insurers and re-insurers entered the fray and the capital markets offered new risk transfer products.
But, there is still the prickly question of what should be done about terrorism insurance and what is the appropriate role for government. Two things are certain: Having to renew this every two years is doing nothing to either solve the problem or stabilize the market. So, at the very least, any solution must involve at least a five- to 10-year time frame. Next, there is no question that in the case of nuclear, biological, radiological and chemical attacks--where it is difficult to develop a viable risk model--the insurance industry needs back-up. But sadly, more conventional terrorism is a daily event in other countries. In many ways, the example of the World Trade Center--that both buildings collapsed--was something of a fluke. It is highly unlikely that a tragedy on that scale could be replicated with conventional terrorism, and even if it were, the losses--at least in terms of money--might still be less than the losses from 2005's hurricane rampage, as they were with the WTC. In the end, a permanent solution for TRIA is best aimed at where it is really needed--nuclear, biological, radiological and chemical. On the conventional front, the industry should either accept a higher trigger--in excess of $10 billion--or a premium structure in which the government gets some compensation.

Comments