Insurers must begin planning now for the expiration of a federal terrorism insurance backstop program, even though there’s no guarantee that reinsurance will be available if the federal backstop is allowed to expire as planned at the end of 2005. That warning was sounded by experts at the Annual Underwriting Conference, held recently in Orlando by the Alliance of American Insurers and the American Association of Insurance Services (AAIS). Even though the government is providing a partial backstop through the Terrorism Risk Insurance Act of 2002 (TRIA), the threat of another attack presents a real concern for insurers, said retired CIA intelligence expert Richard Coffman, president of Coffman Global Group. “While we’re doing well overseas, the home-front is a serious concern,” Coffman told the audience of underwriters. “Despite costly security enhancements, U.S. seaports, utilities, transportation chokepoints, and nuclear and chemical facilities are dangerously vulnerable as we speak. And despite our foreign successes against Al Qaeda, it remains a dangerous and determined terrorist foe with thousands of well funded, well-trained terrorists at large, hidden in cells, increasingly underground and decentralized. I’m particularly concerned at our maritime systems, over which some 90 percent of global trade is conducted, and which may be the most vulnerable sector, in my view, among likely terrorist targets in this country. Each container, each ship and each port facility is a potential delivery medium for a terrorist attack. An attack against our maritime transportation system is almost impossible to defend, but the results would be catastrophic.” Deborah Colantuoni, senior vice president GeneralCologne Re, told the audience that reinsurers will continue to limit or cap their exposure to terrorism until they have a better ability to understand the risk and price it accordingly. While TRIA temporarily took the pressure off reinsurers, there is no certainty that reinsurers will step back into the market if TRIA is not renewed. Rita Nowak, assistant vice president, P/C for the Alliance of American Insurers, said insurers are concerned that if TRIA sunsets at the end of 2005, the limited availability of reinsurance currently on the market will totally disappear. She warned that the timing of TRIA’s expiration and the renewal of policies could cause operational problems.
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