The Council of Insurance agents & Brokers has told Congress that it “should move to extend the federal terrorism backstop beyond its Dec. 31, 2005, expiration date because the private marketplace is not prepared to take on the full risk posed by potentially catastrophic terrorism losses.”
In testimony before the before the Senate Banking Committee, Albert R. (Skip) Counselman, a former CIAB chairman, not only urged TRIA’s extension, but also endorsed the insurance regulatory reform “road map” sponsored by Reps. Michael Oxley, R-OH, and Russell Baker, R-LA, as “a positive and necessary step toward modernization of the insurance regulatory structure.”
The CIAB’s bulletin noted that, although it “still ultimately favors an optional federal charter for insurers and brokerage firms, Counselman said the regulatory reforms spelled out in the Oxley/Baker roadmap is a sound interim step.” He indicated that they would “go a long way toward resolving many of the most deep-seated insurance regulation problems,” particularly in areas such as uniform licensing standards and reciprocity requirements.
Counselman, who is president and CEO of Riggs, Counselman, Michaels & Downes, Maryland’s largest independent brokerage firm, told the Senate panel that federal regulatory reform is needed because of the inability of state regulators to keep up with the pace of financial services convergence and globalization.
He cited terrorism coverage as a good example, stating: “Although the state regulators worked diligently in the days and months after the Sept. 11, 2001, terrorist attacks to help to bring stability to the insurance marketplace, it was abundantly clear that they did not have the capacity to act quickly to implement a uniform approach in every state to address the emergency.”
Fortunately, he said, Congress adopted the Terrorism Risk Insurance Act (TRIA) that has provided the backstop necessary to stabilize the insurance markets and enable construction and real estate projects to proceed and help vulnerable infrastructure to be insured.
He also noted that in the two years since TRIA was passed, “the evidence is mounting that TRIA is effective and that purchase of terrorism coverage is increasing. It has also become evident, however, that the private marketplace will not be prepared to take on the full risk posed by potentially catastrophic terrorism losses by the time the law expires on Dec. 31, 2005. Thus it is imperative that TRIA be extended.
“The law has successfully brought stability to the private market for terrorism risk insurance, enabling all sectors of the economy to operate on a ‘business as usual’ footing,” Counselman continued. “Without the backstop, the economy could suffer significant damage as businesses pull back because the lack of insurance coverage makes them financially vulnerable.”
He noted that TRIA affects all parts of the country, and because of its enactment, the availability of terrorism coverage has grown, premium prices have dropped and nearly half of all insured are purchasing terror cover.
According to a study earlier this year by Marsh, Inc., the largest percentage of companies buying terrorism insurance were in the energy business, followed by the media, food and beverage, habitational/hospitality, health care and real estate industries.
“These industries operate across the country. They are not limited to one or two cities and geographic areas,” Counselman noted, “and their products and services are used by all Americans. TRIA ensures that these industry sectors, which are terrorism targets because of their importance to the country, public safety and the economy, are able to secure the insurance coverage they need to operate.”
On the issue of regulatory reform, Counselman said the Oxley- Baker proposal “is a comprehensive plan” that not only would ensure uniformity in broker licensing, but also would resolve the surplus lines market access issues that currently plague insurers as well as speed to market problems caused by cumbersome rate and form regulation.
“The roadmap proposal could prove to be a huge step on the road to insurance regulatory reform,” Counselman said. “Having said that, however, we believe the ultimate solution, at least for the property and casualty industry, is enactment of legislation creating an optional federal insurance charter.”
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