PCI Rebuts Wall Street Journal TRIA Article

A recent article in the Wall Street Journal, “Insurance Risk Update: More Alert, Less at Risk” by Holman W. Jenkins, Jr., has brought a swift rebuttal from the Property Casualty Insurers Association of America.

In an open letter to the WSJ, from Carl Parks Senior Vice President, Federal Affairs, the PCI said that from reading the article, “one would think that Mr. Jenkins has joined the ‘conspiracy-minded’ by his insinuation that the recent terrorism alerts are ‘designed by real estate and insurance lobbyists to boost the chances of extending into perpetuity a ‘temporary’ subsidy for terrorism insurance.”

The text of Parks’ letter continues as follows:

As an industry, we can quantify the damage that may occur as a result of a terrorist act. However, determining when and where that will happen is impossible. TRIA was created as a federal “backstop” in the event of significant insurer losses. The industry would still sustain significant losses through the required insurer deductibles.

If an event the size of September 11 were to occur today, the industry could be responsible for more than $20 billion and this amount would increase to over $30 billion in 2005. This amount would come almost wholly from U.S. insurers, not from reinsurers who paid $2 out of every $3 for those September 11 losses, and who are generally no longer providing reinsurance for terrorism at that level.

Mr. Jenkins suggests that “a dissenter should…emerge from the insurance industry itself.” But in point of fact, the business community, the entire insurance industry – insurers, agents, reinsurers and regulators – and informed Members of Congress recognize that the program is NOT a “subsidy.” Rather, TRIA is a vital economic safety net for the United States.

TRIA has enabled insurers to continue to provide the coverage American policyholders need and it is imperative that this backstop remain in place for our nation’s consumers. Mr. Jenkins states, at least twice, that the industry has reserves of “$100 billion.” Actually, the industry’s surplus is more on the order of $347 billion. However, those surplus dollars must be available to pay ALL anticipated losses, not just those related to terrorism.

Finally, Mr. Jenkins states that “Government serves as the implicit insurer of last resort, and everybody knows it.” We would agree that TRIA does just that, prior to an event, at minimal federal cost. It is far less expensive to “be prepared” than to react afterwards. TRIA, as enacted, serves as an “insurer of last resort” when the unfathomable and unpredictable happens. TRIA must be extended.