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"

Terrorism Risk Insurance is one of the most important economic and national security issues we face. Terrorism is still a very real threat in this country. The bombings last week in London serve as a reminder that enemies remain who are committed to threatening our security and our way of life. September 11 was not only an attack on the American people, it was an attempt to undermine our economy. Terrorist will undoubtedly try again.

We live with the threat of terrorism for the foreseeable future and Congress has a critical role in insuring that our economy is protected from the potential dislocations from a terrorist attack.

I am proud to be a sponsor of the Dodd-Bennett bill because I believe that we must extend the Terrorism Risk Insurance Act and protect our economy from the threat of terrorism.

Everyone agrees that the TRIA program has worked. TRIA helped stabilize the insurance markets after September 11 and has strengthened them since then.

The question facing us today is how to proceed for the future and what form the TRIA program should take going forward. I think there are several facts that are critical to this debate.

Terrorism is a major and continuing threat that we cannot ignore.

Protecting our national security is first and foremost the responsibility of the federal government.

Other nations have looked at this problem and have chosen to provide a government backstop program.

Unlike some other types of insurance coverage, regardless of how prudent a policy holder is or how much he acts to protect against a terrorist attack, the policy holders ability to protect themselves is limited.

While we all prefer to allow markets to function without government intervention when possible, this is a classic market failure. Unlike the actuarial data for floods, earthquakes, hurricanes and life expectancy, no one can quantify the likelihood of a terrorist attack because it is less predictable and there is no historical data to allow for an accurate assessment. If we cannot predict the likelihood and policyholders have a minimal role in protecting themselves, how can we create a market to insure against it?

And perhaps most importantly, we cannot risk the potential economic dislocation of getting this wrong.

At a recent testimony, Chairman Greenspan said that there are certain instances in which markets do not work and there is no compelling evidence that the market can be made to work.

In a June 2005 Special Comment, Moody's stated "Almost universally, private market reinsurance is not being utilized to cover terrorism risk below companies' TRIA deductibles. Consistent with our 2003 survey, Moody's would still characterize the proportion of terrorism risk being shifted from primary insurers to private markets as low."

I believe there are some modifications that can and should be made to this program within the framework of the original program. However, we should not throw out the baby with the bath water. I am no more convinced that the private markets are any better equipped today to effectively insure against terrorism without a federal backstop than they were after September 11.

We should reauthorize TRIA and examine the appropriate federal role for the future. We have an obligation to the American people to protect our economy. I believe there probably will need to be a continuing federal role because the markets will not be able to adequately insure against the risks of terrorism in a fair or affordable manner.

Mr. Chairman, I want to raise one more note of caution. We should reauthorize TRIA in a bipartisan and expeditious fashion without extraneous and controversial issues. As we learned in 2002, tort reform provisions will only impede the legislative process and threaten the extension of this important program. I have supported a number of legal reform measures, but we should keep this legislation clean and not weigh it down with unnecessary and contentious tort reform provisions.

I look forward to hearing the testimony of the witness.

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