Up Next: Terrorism Risk Insurance

Mar 05, 2014

In the coming weeks, Congress will begin debating whether to take a temporary program one step closer to immortality. In 2002, in the aftermath of the September 11, 2001 terrorist attacks, Congress passed the Terrorism Risk Insurance Act (TRIA), which established a 2-year program to "allow for a transitional period for the private markets to stabilize, resume pricing of such insurance, and build capacity to absorb any future losses, while preserving State insurance regulation and consumer protections." TRIA has since been extended twice and absent further action from Congress, the program is scheduled to expire at the end of this year.

Prior to September 11, there was no way for insurance companies to properly account for the risk of terrorism and the costs that come with the aftermath. Initially enacted as a two-year stopgap measure, TRIA gave the federal government the ability to reinsure insurance companies following terrorist attacks. The private sector has now had an additional decade to assess risks and develop affordable terrorism insurance. TRIA succeeded in fostering the development of private terrorism risk coverage. The number of companies purchasing insurance has sharply increased from 27% in 2003 to 61% in 2009.

On September 11, 2012, Heritage expert David John told the House Subcommittee on Insurance, Housing and Community Opportunity, "TRIA has served its purpose and should now be allowed to expire." He continued:

[W]e have now reached a point where the private sector is increasingly capable of providing that coverage at appropriate prices without government support. In fact, the continued existence of TRIA may keep the industry from further progress.

The policy case is fairly clear cut: the need for "temporary" federal influence is no longer necessary. The federal government should hand over the reins to those that can properly administer insurance policies instead of hindering the growth of a private insurance market. Even the non-partisan Congressional Budget Office (CBO) stated that, "the development of global financial instruments for spreading risk, including catastrophe bonds, would probably be more rapid without TRIA."

Despite widespread backing from the financial services industry, the legislative process for reauthorizing the "temporary" program is increasingly murky. As CQ reported House Financial Services Committee Chairman Jeb Hensarling "is 'skeptical' of the need to keep taxpayers on the hook." The article continued:

Despite conservative misgivings, GOP leaders are unlikely to welcome a politically damaging debate over terrorism ahead of the midterm elections, and Congress seems likely to renew the law in the coming months - with or without Hensarling's vote.

Bypassing a conservative committee chairman tends to take things in the wrong direction, as we saw this week during the flood insurance debate. The Wall Street Journal seethed:

Last week GOP leaders tried to gut their own 2012 insurance reform, but they were forced to pull the bill amid a rank-and-file rebellion led by Jeb Hensarling of Texas. Unlike tax or immigration reform, on taxpayer subsidies GOP leaders don't give up easily. So Majority Leader Eric Cantor has now turned to that noted free-marketeer, California Democrat Maxine Waters, to help win over more Democrats and repeal their own law.

Lawmakers can and should avoid a similar mistake on TRIA. It's time to let this federal program see an outcome that is extremely uncommon in Washington, but intended for TRIA: expiration.