New York insurance officials, fearful Congress will not renew the Terrorism Risk Insurance Act before it expires at the end of the year, are working on backup plans of their own.
New York officials have been in touch with peers across the country about a “cities in crisis” program to respond to what they believe will be a drying up of insurance markets in their urban areas if TRIA is abandoned, according to N.Y. Superintendent of Insurance Howard Mills.
Mills said his department also has plans to encourage more firms to create captives to deal with terrorism risk if the federal backstop is not renewed.
Beyond that, Mills did not provide details about what state and local government might do if TRIA disappears, stressing instead his belief in the need for federal involvement. “There is no substitute for TRIA,” he said following a talk before the Professional Insurance Agents of N.Y. in Suffern in which he expressed deep frustration over how Congress has dealt with TRIA.
In his speech Mills noted that he has testified before the House and Senate in favor of TRIA on several occasions and has come away from Washington each time very concerned. “Many in Congress simply do not understand or refuse to understand the importance of extending TRIA,” he remarked.
“They see it as a free market problem. I tell them there will be a free market response to the lack of a federal backstop. I tell them they should be prepared for the fact that the free market will cease to write this coverage.” Insurers will opt to make their money in other, less risky lines, he pointed out.
He said that this is how the private insurance market responded following the attacks on Sept. 11, 2001 and that TRIA was “critical to an economic recovery much faster and more complete than anyone thought possible.”
He warned that a federal role is still critical to maintaining insurance.
“Without the involvement of the federal government, terrorism insurance will not happen,” Mills said. “This (non-renewal of TRIA) will be a crippling blow to the economy.” He stressed his belief that the effects would be felt beyond New York.
Next to the support of the armed forces, TRIA may be one of the most important weapons in the fight against terrorism, Mills added. “Terrorists are trying to ruin our economy,” he warned.
“I’m a small government type but there are some things only government can do. This is one of the best examples of something that government should do.”
He said he thought Congress might act on TRIA after the London bombings this summer but it did not. Now he said his hope is that Congress will take the “path of least resistance” which would be to renew TRIA as it is and worry about a longer-term solution later.
Mills is among the leaders who are convening a forum next month in California to come up with agreement on a national insurance and risk-sharing program for natural disasters and terrorism. Currently, some states, such as California and Florida, have insurance pools to deal with catastrophes particular to their region such as earthquakes and hurricanes. However, not all states have such plans.
In his view, Mills said he believes that a terrorism plan should be separate from any natural disaster plan.
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