Congressman Randy Neugebauer (R-TX), Chairman of the Financial Services Subcommittee on Housing and Insurance, gave the following statement at a hearing today on reforming terrorism insurance. Neugebauer emphasized that in the 12 years since the Terrorism Risk Insurance Act (TRIA) was first passed, the market has evolved to better respond to terrorism risk, but TRIA hasn't kept pace.
"Thank you for attending this important hearing on the future of the terrorism risk insurance marketplace. This is the second in a series of hearings examining the Terrorism Risk Insurance Program and today we will focus on ideas to leverage private sector innovation to limit taxpayer exposure in the Program.
"Congress passed the Terrorism Risk Insurance Act (TRIA) of 2002 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.
"Unfortunately, that transition hasn't taken hold as quickly as Congress had originally intended. But since the last reauthorization of the Program in 2007, we have seen encouraging developments that lead me to believe that this Committee can finally begin to take off the training wheels and transition to a terrorism risk insurance market that is less dependent on a taxpayer-funded backstop.
"In our first TRIA hearing, we were encouraged to learn how evolved the terrorism risk insurance marketplace has become. We learned that since the advent of TRIA in 2002, markets have stabilized thanks to the presence of the Program; we learned that risk management practices have improved; that terrorism risk modeling has advanced considerably; that underwriting has become more nuanced; and that the price of terrorism coverage has declined over 70%.
"But we also learned that the evolution of the Terrorism Risk Insurance Program has failed to keep pace with the advances and innovation of the private market. In fact, the Program remains largely unchanged in nearly 12 years. Unfortunately, the slow evolution of the Program has hindered the growth of the private market for terrorism risk insurance; thus resulting in a bad deal for U.S. taxpayers.
"Today's hearing will give us an opportunity to discuss ways in which to modernize a Terrorism Risk Insurance Program that most of my colleagues -- including the Ranking Member of this Subcommittee - concede is imperfect. The discussion today will provide important reform ideas that can help this Committee achieve its long-awaited goal of transitioning to a terrorism risk insurance market primarily driven by the private enterprise.
"Given the advances in modeling terror risk, the record levels of insurance capital - including over $500 billion of reinsurance capital -- and recent innovations in the capital markets and alternative risk transfer space, I have never been more encouraged about the prospects for achieving that goal.
"However, it is worth noting that while I do firmly believe that the private market could handle risks associated with conventional acts of terror, I am less convinced of its ability to handle less predictable, catastrophic events such as nuclear, biological, chemical, and radiological attacks. I look forward to addressing these concerns with the witnesses here today.
"I thank my colleagues for participating in this important hearing today and I look forward to a productive dialogue as we work through the TRIA reauthorization discussion. While the Program is not set to expire for another 13 months, I feel it is important that this Subcommittee move through this debate in a swift - yet deliberate - manner in order to avoid uncertainty in the market when terrorism policy renewals come up in 2014."