Hearing of U.S. Senate Committee on Banking, Housing, and Urban Affairs "Treasury Department's Report to Congress Regarding The Terrorism Risk .......

Hearing of U.S. Senate Committee on Banking, Housing, and Urban Affairs "Treasury Department's Report to Congress Regarding The Terrorism Risk Insurance Act of 2002"

Chairman Shelby, Ranking Member Sarbanes, thank you for holding this important hearing today on terrorism risk insurance.

It has been almost four years since the September 11th attacks that prompted the passage of the Terrorism Risk Insurance Act. And while we have been fortunate here in the U.S. that no events have triggered the use of this federal backstop, the bombings in London last week, the Madrid train bombing last year, and the nightclub bombing in Bali in 2002, each serve as painful reminders of the reality of the ongoing war on terror, and the fact that attacks can happen anywhere at anytime.
Prior to September 11th, the risk of terrorism was not a factor when insurers wrote policies. However, in the post 9/11 environment, the availability of affordable insurance for terrorism risks has become a necessity.

The war on terror involves protecting our homeland and protecting our citizens. Recent polls show that Americans believe that more attacks on the U.S. are very likely. In light of the current environment, it would be both unrealistic and premature to conclude that a federal backstop is no longer necessary. Moreover, with less than six months before its expiration, it is irresponsible for the Administration to determine that extending TRIA is not warranted absent significant changes, and to suggest that it is appropriate to shift the burden of insuring against the risk of terrorist attacks solely to the private insurance market.

At this juncture, I believe we continue to need a program like what we have established with TRIA. This week, I joined with Senators Dodd and Bennett, and nine other members of this committee in co-sponsoring S. 467 which extends the program, and would enable the Presidential Working Group on Financial Markets to make long-term recommendations for Congress to consider.

S. 467 would also direct Treasury to include group life products in the program. As I have reiterated over the past several years, it is critical that we create conditions that permit the private insurance markets to continue to offer group life insurance coverage to employees at high risk of attack. Moreover, the lack of affordable reinsurance for group life products calls into question the Administration's position that TRIA is crowding out innovation that would otherwise enable the industry to offer insurance for terrorism risk without a governmental backstop. Reinsurance has essentially evaporated for the group life sector, which Treasury specifically chose not to include in the terrorism risk insurance program, and thus was not hindered in its pursuit of market innovations. We ought to be working to create a marketplace where reinsurance can reemerge for group life products, rather than jeopardize the TRIA-facilitated appearance of reinsurance for products, like workers compensation, which are comparable to group life.

That said, I certainly appreciate that innovations within the insurance industry may be part of the long-term solution, and we certainly ought to facilitate that as we go forward. I think the time has come for Congress to review the current regulatory landscape of the insurance industry to ensure that it does not unnecessarily restrict innovation, and I am pleased that Senator Dodd's legislation is consistent with that objective -- extending TRIA for a period of time sufficient for Congress to begin looking at modernizing the regulatory scheme for insurance while it also reviews longer term solutions to the challenge of insuring against acts of terror.

Because of the random and unpredictable nature of terrorism, I am not yet convinced that the private sector can adequately or accurately assess terrorism risk in the absence of a federal backstop. Estimating the likelihood of attacks or the extent of loss is difficult, if not impossible. Now is not the time for the Administration or Congress to leave the private insurers to go it alone.

I look forward to hearing from today's witnesses.

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