Consumer Federation: Let Terrorism Ins Act Die

[cb88]

Consumer Federation: Let TRIA Program Die

By Steven Brostoff, Washington Editor



NU Online News Service, April 19, 3:44 p.m. EDT, Washington—Congress should allow the Terrorism Risk Insurance Act to expire, the Consumer Federation of America said.

In a new study, the Washington-based CFA said that the private insurance industry is capable of paying terrorism-related claims on its own.

"Our study clearly documents that the insurance industry is more than ready to stand on its own two feet and that taxpayer backup should end," said J. Robert Hunter, CFA's director of insurance.

"The ability of the industry to insure against terrorism is enormous and growing, profits are quite substantial; and the financial condition of insurers overall is rock solid," he said.

CFA said that only nine communities in the nation are at either a high or moderate risk of being the target of a terrorist attack. Those at high risk are New York City, San Francisco County, the District of Columbia and Cook County, Ill., which includes Chicago.

The communities at moderate risk, according to CFA, are Suffolk County, Mass., which includes Boston; King County, Washington, which includes Seattle; Los Angeles County; Harris County, Texas, which includes Houston; and Philadelphia County.

CFA said that if Congress does decide to continue the TRIA program, it should consider a plan that focuses on these communities.

In addition, CFA said, the industry-wide deductible for terrorism coverage should increase to a pretax figure of $77 billion for the first year of the program, and should then increase by another $10 billion per year.

CFA also said that the share of losses that insurers must pay above the deductible should increase from 10 percent to 15 percent.

Insurance companies should pay actuarially sound premiums for terrorism reinsurance provided by the government, if not a little higher, CFA added. Charging rates that are slightly higher, CFA said, will encourage private market mechanisms to compete by offering lower rates.



cb88 note: The lack of understanding on the part of the CFA is mind-boggling. First off, the WTC tragedy nearly bankrupt hundreds of companies and was, in part, responsible for the downfall of Kemper Insurnace Co., an international company that had seen substantial profits. Sure, the industry can withstand it, if they are allowed to charge the premiums that it will take to facilitate the coverage. ANYTHING is insurable IF you can get enough premiums. The problem is, no business will be able to afford the premiums that insurance companies will need to charge to properly underwrite the risk if the government doesn't provide some type of federal reinsurance. Which is ALL that the Terrorism Ins. Act is....federal reinsurance. It is NOT a first dollar insurance (unlike the National Flood Ins. Program).

I have taken extensive classes on the TRIA. First off, it is the biggest clusterf**k that the government has ever created. They did not have a lot of industry input when they developed that. Secondly, the coverage ONLY covers you if the act of terrorism results in a cause/peril you are already covered for. In other words, if you buy terrorism coverage on your business property/income policy and you don't buy flood coverage, but the terrorists blow up a dam causing your business to flood, you still have no coverage. Additionally, it has to be a "certified act of terrorism" (the government has to say it was terrorism and certify it). Next, if they pay out over the stop loss, the government will charge EVERY commercial policy holder that was in place at that time (whether they had terrorism coverage or not) a surcharge to regain the loss. So, really, the program requires VERY little tax payer dollars. Of course, it's pretty much like putting a bandage on a gushing wound.

That is a simplification of TRIA....the classes I took were 8 hours long each. And the program's dynamics change weekly, if not daily.

[Hoss68]

So then why have TRIA? If it is such a minor coverage and that difficult for anyone to collect on... Sounds like a waste of tax dollars to me.

[cb88]

Originally Posted by Hoss68

So then why have TRIA? If it is such a minor coverage and that difficult for anyone to collect on... Sounds like a waste of tax dollars to me.

BINGO!!!!

IF the government was going to do this, they should have had insurance industry experts sitting on the panel/committee that set this up and did it right. I have probaby a tree worth of text on this.

It's a PR move and nothing more. One of my other points of disagreement with the Bush Admin. (yes, I do disagree with them sometimes) If they were going to do this, they should have done it right.

[Hoss68]

So basically it was something they did with no true knowledge of how insurance works, so they covered the highlights and made it look like it was something it was not?! Am I reading that right?

[sfga6970]

cb, are you saying that they had minimal or no insurance industry input into this? If they didn't, it is absurd.

[cb88]

Hoss & Sfga

That is EXACTLY what I"m saying. I'll have to track down the list of who was on the committee. Basically, I have more insurance knowledge than anyone who served on that committee. And, from what I understand from my "sources" (which includes the lobbyist I used to work with and his sources...the lobbyist of the national association and others) there was really NO input from anyone in the industry. I have my books at work. I'll get some facts out of them tomorrow and post them.

The coverage can be valuable, don't get me wrong....BUT...it just depends on the insured. I'd never recommend anyone not buy it, then I'd be holding myself liable if they didn't buy it and had a legitimate claim. I'm seeing very few people taking it. Those that need it (Chicago, NY, LA) are in the highest rating zones and can ill afford it. For those in other rating bands, it's realitively inexpensive, but, well, you know...they are low rating bands for a reason. Who knows, though....the terrorists could decide that lots of little attacks in the minor major cities (Dallas, Boston, Miami, etc) could be more "fun" for them. *shrugs* Which is why I'd never tell anyone not to buy it...but I would tell them exactly what has to happen before coverage kicks in and then let them make the choice.

[sfga6970]

Originally Posted by cb88

Hoss & Sfga

That is EXACTLY what I"m saying. I'll have to track down the list of who was on the committee. Basically, I have more insurance knowledge than anyone who served on that committee. And, from what I understand from my "sources" (which includes the lobbyist I used to work with and his sources...the lobbyist of the national association and others) there was really NO input from anyone in the industry. I have my books at work. I'll get some facts out of them tomorrow and post them.

The coverage can be valuable, don't get me wrong....BUT...it just depends on the insured. I'd never recommend anyone not buy it, then I'd be holding myself liable if they didn't buy it and had a legitimate claim. I'm seeing very few people taking it. Those that need it (Chicago, NY, LA) are in the highest rating zones and can ill afford it. For those in other rating bands, it's realitively inexpensive, but, well, you know...they are low rating bands for a reason. Who knows, though....the terrorists could decide that lots of little attacks in the minor major cities (Dallas, Boston, Miami, etc) could be more "fun" for them. *shrugs* Which is why I'd never tell anyone not to buy it...but I would tell them exactly what has to happen before coverage kicks in and then let them make the choice.

I'd like to read more about this. I was unaware of the differences in costs and coverage based on the city. Plus, the fact that there was no industry input on the committee makes the whole program highly suspect to me. I'm looking forward to the information you post.