Insurers Fight for Terror Backstop

The insurance industry is urging the government to extend the Terrorism Risk Insurance Act.
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NEW YORK (

TheStreet

) -- U.S. property/casualty insurers are circling the wagons to prevent the Obama admistration from cutting a federal backstop for terrorism insurance.

"We have already had extensions of this bill and it will continue to cost the government nothing," said Robert Hartwig, president of the Insurance Information Institute (I.I.I.). "Large scale terrorism losses are not insurable and threaten the claims paying ability of the industry."

The Obama administration has proposed scaling back the Terrorism Risk Insurance Act (TRIA) as part of a $17 billion budget cutback plan. The proposed cuts would slash $249 million in TRIA subsidies that -- in turn -- back U.S. insurers policies for losses related to terrorism, primarily in commercial real estate.

Currently, TRIA provides a $100 billion backstop to commercial property and workers compensation reinsurers and carriers that offer terrorism cover. Under the program, the government covers 85% of losses if a terrorist attack were to occur.

If the government cuts back on TRIA, it could be déjà vu for the property and casualty industry. The companies that currently offer terrorism insurance include

Chubb

(CB) - Get Report

,

The Hartford

(HIG) - Get Report

,

Travelers

(TRV) - Get Report

,

ACE

(ACE)

,

CNA

(CNA) - Get Report

and

State Farm

.

P/C insurers are likely to refuse to underwrite terrorism insurance if TRIA sunsets because it would be "impossible to price the product," said Hartwig.

"It would hurt businesses in general. As a business, you have to have the insurance ahead of time. The economy doesn't need any more uncertainty," Hartwig added.

"Given the continued grave uncertainty and potentially catastrophic levels of loss, sound insurance practices and the tools insurers have developed to manage other catastrophic risks are simply inadequate to underwrite and price this risk without a governmental mechanism to limit volatility, J. Stephen Zielezienski, senior vice president and general counsel of the American Insurance Association (AIA) said in a

letter

submitted public comments on behalf of AIA's members to the President's Working Group (PWG) on Financial Markets.

TRIA was established shortly after the September 11, 2001 terrorist attacks. After the attack, many reinsurers notified domestic carriers that they would no longer underwrite terrorism coverage. Others continued to offer it, but at lower levels of coverage and increasing rates from 30% to 300%.

Peter Freeman, vice president of insurance and trade for The Financial Services RoundTable, said that terms of TRIA have been renewed twice times and are likely to be renewed again. "I think there is enough support on the hill, but if funding is cut it will surely affect affordability and availability," he said. "There is still a need out there in the policy holder community."

--

Written by Maria Woehr in New York

.