Uninsurable Events Should Not Be Included in Proposed Terrorism Risk Insurance Act Legislation

The public/private partnership that is Terrorism Risk Insurance Act (TRIA) has functioned well to bring the economy back to stability, following the devastating terrorist attacks of 9/11. National Association of Mutual Insurance Companies (NAMIC), like many in the insurance industry, believe it would be ill-advised to expand this program to include uninsurable events, such as attacks by weapons of mass destruction; i.e., nuclear, biological, chemical, or radiological (NBCR). Such an expansion could threaten not only the operation of the program and participation by smaller and medium sized insurers, but also timely extension of the legislation itself.

Attacks using NBCR agents are the ultimate in uninsurable events and they can have very different consequences than non-NBCR attacks.  Rolling NBCR into terrorism coverage will likely result in significantly increased premiums and probably have the unintended result of reducing the take-up rate – i.e., the percentage of policyholders that purchase the product – for terrorism insurance.  Requiring any retention of NBCR risk by primary insurers (even where the federal program bears most of the risk) makes little sense if insurers cannot find private reinsurance.

With reinsurance either unavailable or unaffordable, insurers would nonetheless be required to have capital sufficient to back this new risk.  Consequently, we would expect to see an immediate reduction of insurance available to provide this coverage.  Many small mutual insurers would probably not be able to raise sufficient capital quickly enough to stay in this business.  The most likely outcome would be reduced, not expanded, capacity for all lines of insurance, as insurers divert capital from other products to support this new risk they’d be required to bear.  In addition, creating new, stand-alone NBCR coverage would lead to adverse selection, in that only the most vulnerable risks would opt for coverage.

Because of these and other problems associated with NBCR risk, NAMIC supports establishing a commission to study the complex issue of NBCR insurance coverage. Insuring property owners and workers against NBCR-related terrorist attacks is a grave national issue.  It would be a mistake to simply fold NBCR coverage into a much-needed extension of the existing TRIA program without an adequate understanding of what that would mean.

Clearly, including NBCR in a TRIA extension is not in the best interests of NAMIC members, the insurance industry, policyholders, or the economy. Instead, we urge quick passage of an effective long-term extension and have a commission review NBCR issue.