NEW YORK, March 5 /CNW/ -- Declaring the current federal backstop program
for terrorism insurance an "unqualified success," a top executive of Willis
Group Holdings urged a congressional panel meeting here to continue federal
involvement in terrorism coverage because the risk of an attack on this
country has not lessened since Sept. 11, 2001.
Noting that his company's headquarters are located in Lower Manhattan,
not far from the site where the Twin Towers of the World Trade Center once
stood, Don Bailey, a top executive of Willis North America, told the House
Financial Services Subcommittee on Capital Markets, Insurance and Government
Sponsored Enterprises that the United States has been fortunate not to have
experienced another terrorist attack on its soil since 9/11.
"However, if you look to London, Madrid and other locations around the
world, I think we can all agree that terrorism is a permanent problem for
which we need a permanent solution," Bailey told the House subcommittee
hearing. "Regrettably, the question of another terrorist attack here in the
United States is a matter of when, not if."
Bailey testified on behalf of Willis, a global insurance brokerage firm,
and The Council of Insurance Agents & Brokers, which represents the leading
domestic and international commercial insurance agencies and brokerages.
Bailey also testified last week in Washington at a similar TRIA hearing by the
Senate Banking Committee.
The Willis executive noted that "not one taxpayer dollar has been spent"
on the Terrorism Risk Insurance Act since it was first passed in 2002 and then
renewed in 2005, but the program has done what was needed to make terrorism
coverage available at affordable prices in the commercial marketplace. Without
action by Congress extending the program or making it permanent, TRIA will
expire on Dec. 31, 2007.
"The program has been an unqualified success in stabilizing the insurance
markets and allowing insurers to provide much-needed terrorism coverage at
affordable prices. Policyholders -- the businesses of our economy -- have not
had to deal with extremely high and volatile terrorism insurance costs and
have been able to budget for their business plans," Bailey testified.
He noted that for many commercial policyholders, having terrorism
coverage is more than a matter of peace of mind and in fact is essential to
doing business since it is frequently required to obtain a mortgage, finance
new construction, expand a business or launch a new business venture.
Bailey disputed those who say the private market could handle the losses
from a terrorist attack. There currently is only around $6 billion to $8
billion in global terrorism reinsurance capacity available, but losses from a
single terrorist attack could reach $100 billion, he said. There is even less
capacity available for nuclear, biological, chemical and radiological
coverage, roughly $1 billion to $2 billion, yet a medium sized attack with a
weapon of that type in New York City could result in $446.5 billion in damage.
"Clearly, there is simply not enough capacity in the private market to
cover losses due to terrorism," he said.
Neither is it likely that the insurance industry could handle the costs
on its own by simply collecting premiums based on underwriting and pricing as
it does for other categories of risks because the attacks are unquantifiable.
"A terrorist attack is not perpetuated against a company or a building,"
Bailey said, but instead is aimed at the United States itself. "Could you
imagine a scenario where the federal government knew an attack was going to
happen and did not take steps either to prevent it or at least prepare for the
aftermath? I suggest that not developing a long-term terrorism risk insurance
program would be just that," Bailey said.
Rep. Paul Kanjorski, D-Penn., chairman of the insurance subcommittee, has
said he favors a long-term extension of TRIA and plans to have a bill ready
for full Financial Services Committee consideration by April 2. The chairman
of the Senate Banking Committee, Sen. Chris Dodd, D-Conn., has indicated he
favors a permanent solution to the terrorism insurance problem.
"The most important issue for the broker community is maintaining access
to coverage at a price the business consumer can afford," Bailey said. "In
order to get this access, we need insurers who are able and willing to provide
the coverage. It is clear that they cannot and will not be able to provide
terror coverage without a federal backstop or some other mechanism to cap
Bailey stressed that availability of affordable terrorism coverage is not
just an issue for urban areas on the East or West Coast, nor is it limited to
"Industry reports indicate that the take-up rates are high across the
country and across industries, and policyholders are generally willing to
purchase terrorism coverage when it is available at an affordable price,"
Bailey said. "For companies with a higher perceived risk, whether due to
size, location, industry or other factors, the take-up rates are even higher."
He said take-up rates for terrorism insurance are highest in the
Northeast and Midwest, followed by the South and the West.
"Within specific industrial sectors, the largest percentage of insureds
buying terrorism coverage were in real estate, financial services, health
care, media, hospitality, transportation and education. Even companies in the
sectors with comparatively low take-up rates -- energy and manufacturing, for
example -- each had take-up rates exceeding 30 percent in 2006."
Bailey also urged adding risks posed by nuclear, biological, chemical or
radiation to the federal backstop program.
Willis Group Holdings Limited is a leading global insurance broker,
developing and delivering professional insurance, reinsurance, risk
management, financial and human resource consulting and actuarial services to
corporations, public entities and institutions around the world. It has more
than 300 offices in 100 countries. Additional information on Willis may be
found at http://www.willis.com.
Founded in 1913, The Council is the premier association for commercial
insurance and employee benefits intermediaries. The Council represents the
leading commercial brokers and agents in the United States and abroad. Council
members annually write 80 percent of all commercial property/casualty premiums
in the United States and administer billions of dollars in employee benefits
For further information:
For further information: Cheryl Arvidson, Assistant Director, Strategic
Communications of The Council of Insurance Agents & Brokers, +1-703-534-3762,
firstname.lastname@example.org; or Dan Prince of Willis Group Holdings,
+1-212-837-0806, email@example.com Web Site: http://www.ciab.com