Left To Die On the Vine
For once, Congress came up with a plan that made sense; wasn’t a boondoggle; and had bipartisan support. And on 1/1/15 they will let one of the best plans ever conceived simply die on the vine.
Congress established TRIA following the September 11, 2001 attacks as a risk-sharing partnership that allowed the federal government and the insurance industry to share losses in the event of a major terrorist attack.
The program would provide resources to businesses to help them recover/rebuild if they are the victims of a terrorist attack. The plan worked by restoring stability to the insurance and reinsurance markets.
Even better — it cost taxpayers nothing. That was a classic Congressional win-win.
So why would Congress pack up their kit bags and abandon a successful plan?
Apparently there was quibbling within the ranks over the right of each state to decline joining TRIA, as well many who wanted to force more of the financial burden on the insurance industry.
Regardless, instead of working towards a compromise, Congress simply walked away. I find that deplorable.
It’s deplorable because the private sector does not have the capacity to provide insurance/reinsurance for terrorism risk to the extent currently provided by TRIA.
Without TRIA, terrorism risk insurance would be limited and exceedingly expensive. Any coverage available would pale compared to the limits covered by the TRIA plan. I imagine the deductibles would be outrageous.
As a risk manager, my other concern would be the effect on workers’ compensation programs. Employers with a large concentration of workers at one location could see their rates increase significantly.
Insurers, as you know, can’t exclude terrorism-related losses. My employer has large manufacturing plants and highly populated corporate offices across the US. I dread my 2015 work comp renewal … and the sleepless nights leading up to it.
Ditto for property insurance. With no TRIA backstop, insurers will be less likely to write certain locations, or they will place a number of exclusions and sunset clauses to lessen or totally eliminate the terrorism exposure.
From an overall economic standpoint, without TRIA our national security would become destabilized and we become less resilient to future terrorist attacks.
Think of where we were prior to 9/11, The United States was coming off a recession stemming from a bursting bubble; a decline in consumer confidence; and predatory lending had been uncovered. And then we were attacked. The traumatic events magnified and accelerated the underlying trends already in motion in the U.S. economy.
It was a perfect storm for economic disaster. We survived … barely.
As of 1/1/15 we will return to the same place we were prior to the 9/11 attacks – weak and vulnerable from an economic standpoint. If another 9/11 occurs without the TRIA backstop, would we rely on federal aid (which is already stretched beyond capacity)? Imagine what that would do to the economy?
I hate to be one of “those guys” who blames everything on our elected officials, but this time they deserve it. Congress had a chance to do the right thing and they failed.
Read all of Dan Holden’s Risk Insider contributions.