Neugebauer: Twelve Years after September 11, Evaluating Terrorism Risk Insurance

Statement

Congressman Randy Neugebauer (R-TX), Chairman of the Financial Services Subcommittee on Housing and Insurance, gave the following statement at a hearing today on the Terrorism Risk Insurance Act.

"Thank you, Mr. Chairman, for holding this important hearing examining the Terrorism Risk Insurance Program. As you mentioned, this is the first in a series of hearings. I look forward to holding similar hearings in my Subcommittee as we seek to address this important issue.

"The events of September 11, 2001, resulted in a tragic loss of life, along with the complete destruction of entire city blocks in lower Manhattan. After sustaining tens of billions of dollars in insured losses, many insurance companies began to exclude terrorism coverage from commercial insurance policies and reinsurers began to leave the marketplace.

"Congress passed the Terrorism Risk Insurance Act, or TRIA, in the aftermath of 9/11 for fear that the lack of available terrorism insurance could harm economic development. It was intended to provide a two-year transition period during which market participants could develop resources that would enable them to offer private terrorism coverage once the program expired.

"But if there is one thing as certain as death and taxes, it is Congress' inability to sunset temporary programs. When I leave Congress, I'm hoping to get a "temporary' government contract. It seems they are guaranteed for life.

"So eleven years and two reauthorizations later, we are now debating whether Congress needs to extend this "temporary' insurance program once again. I say this, not to play down the complexity of the issue before us, but to remind my colleagues of the circumstances that led to the passage of the original TRIA bill.

"The TRIA reauthorization debate gives this Committee an opportunity to assess the effectiveness of the program and the health of the insurance industry. And what we have seen has been encouraging. Since 2002, the terrorism risk insurance marketplace has evolved significantly. Markets have stabilized thanks to the presence of the program; risk management practices have improved; terrorism risk modeling has advanced considerably; and the price of terrorism coverage has declined by over 70%.

"The health of the insurance industry has also vastly improved. Domestic industry capitalization has more than doubled since 2002; reinsurance capital is at record levels -- currently exceeding $500 billion; and innovations in the capital markets, such as the development of catastrophe bonds and other insurance linked securities, have provided another outlet for risk transfer.

"But despite advances in modeling and record levels of insurance capacity, the Terrorism Risk Insurance Program has remained largely unchanged in 12 years.

"As we kick off these hearings, I am interested in hearing from our witnesses whether it is time for Congress to take off the training wheels and finally transition to a private market for terrorism risk. I am encouraged by recent statements from executives in the insurance industry who have expressed a willingness to write terrorism risk absent a federal backstop. However, it is unclear whether these insurers can satisfy the entire terrorism insurance market.

"While I do firmly believe that the private market could handle risks associated with conventional acts of terror, there are still outstanding questions that I hope to work through in the coming months.

"Through these hearings I am trying to determine whether Congress may need to provide a backstop for less predictable, large-scale, catastrophic events such as nuclear, biological, chemical and radiological attacks. And if it is necessary for Congress to provide such a backstop, how do we structure a program that maximizes the deployment of private sector capital and sufficiently compensates taxpayers for taking on terrorism risk.

"I thank the Chairman for holding this hearing. I look forward to a thoughtful and productive dialogue at this hearing and in the coming months."

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