TERRORISM RISK INSURANCE REVISION AND EXTENSION ACT OF 2007 -- (House of Representatives - September 19, 2007)
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Mr. FRANK of Massachusetts. Mr. Chairman, this is a continuation of a program that the Congress adopted in one of the previous Congresses to provide insurance in case of a terrorist attack. We had, obviously, the terrible murderous attack on America in 2001.
Substantial damage was done. Obviously, the overwhelming cost of that was in the human lives caused by these murderers, but we also had property damage. And I believe that it is unrealistic to think, and in fact inappropriate to urge, that the private insurance market, which functions very well in this country and serves us well, that that ought to be used in response to terrorism. We bring a bill forward that would provide both for life and property insurance from the Federal Government worked out in various ways.
There are two arguments for continuing this on an ongoing basis. Everybody agrees that it needs to be extended for a while. Some have said phase it out, let the private market ultimately take it over. I believe there are two reasons why that is not a good idea.
First, virtually no entities that are in the private insurance market believe that the private market could handle this well. Not only do the insurers believe that, but the customers of the insurance believe it. And primarily, by the way, the customers here are commercial real estate developers. People who are going to build large commercial buildings with tens, hundreds of millions of dollars in construction costs cannot build without a bank loan, and the banks will not lend and would not be allowed to lend by the regulators without fully insuring against all risks, including the risks of the terrorism that we wish were not around but clearly still is.
We do not believe, based on extensive conversations with virtually everyone in the marketplace, that this will work. In fact, I submit for printing in the Record a letter from the head of Goldman Sachs in 2005, that very important financial institution, clearly an entity that knows a great deal about the market. And in 2005, only 2 years ago, after we had TRIA for a while and the question was coming up about whether or not to continue it, he wrote to the gentleman from Louisiana (Mr. Baker), then Chair of the Capital Market Subcommittee, that:
``Current data suggests that reinsurance, and consequently insurance, participation in the terrorism insurance market will decline if the Federal backstop is left to expire.
``Some have suggested that private markets for terrorism can successfully utilize risk transfer mechanisms such as catastrophe bonds.
``There is no evidence to suggest that the rating agencies or capital markets investors will be able to quantify the risk.''
And what he says is that he does not believe the market can do this.
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