The Treasury Department on June 30 released a long-awaited report on the Terrorism Risk Insurance Act of 2002 that concludes the act should not be renewed by Congress in its current form.
The report finds that TRIA has achieved its goals of supporting the industry during a transitional period and stabilizing the private insurance market.
While TRIA has been effective in achieving its temporary objectives, the economy is more robust today than when TRIA was enacted, according to the report, which claims that renewal in its current form could actually hurt the economy and insurance markets.
“It is our view that continuation of the program in its current form is likely to hinder the further development of the insurance market by crowding out innovation and capacity building. Consistent with its original purpose as a temporary program scheduled to end on December 31, 2005, and the need to encourage further development of the private market, the Administration opposes extension of TRIA in its current form,” Treasury Secretary John Snow said in a letter accompanying the report.
Snow noted that GDP growth is up from 2.3 percent in 2002 to 3.9 percent in 2004 (fourth quarter over fourth quarter). Unemployment, which reached 6.0 percent in December 2002, is down to 5.1 percent in May 2005. Construction jobs, taking residential and nonresidential together, now stand at a record high 7.2 million. “Extending TRIA would have little impact on the economy given its current strength,” he said.
Snow added what conditions shoud be considered for any type of act going forward:
“Any extension of the program should recognize several key principles, including the temporary nature of the program, the rapid expansion of private market development (particularly for insurers and reinsurers to grow capacity), and the need to significantly reduce taxpayer exposure.”
He said that the Administration would accept an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as Commercial Auto, General Liability, and other smaller lines, that are far less subject to aggregation risks and should be left to the private market.
“It is also important to keep in mind that the program would cover damages awarded in litigation against policyholders following a terrorist attack. Current litigation rules would allow unscrupulous trial lawyers to profit from a terrorist attack and would expose the American taxpayer to excessive and inappropriate costs. The Administration supports reasonable reforms to ensure that injured plaintiffs can recover against negligent defendants, but that no person is able to exploit the litigation system,” Snow added.
Snow’s letter was to Senate Banking Committee Chairman Richard Shelby and Ranking Member Paul Sarbanes and House Financial Services Committee Chairman Michael Oxley and Ranking Member Barney Frank.
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