Conservatives in the House and Senate achieved a small, but important victory when both chambers passed legislation this week reforming the federal Terrorism Risk Insurance Act. The bill protects taxpayers by limiting their potential exposure should the United States suffer another significant terrorist event similar to September 11th.
In modern America, taxpayers have become the golden goose. All too often, tabs that should be paid for by private industry are picked up by Uncle Sam. This is especially acute when it comes to natural disasters. Aid goes out but nothing is ever repaid. A single storm can cost billions.
While TRIA temporarily puts taxpayers on the hook as a backstop of loss to insurance companies in the event of a major attack, the program actually saves taxpayers money by providing a structure for private money to pay the costs of a terrorist attack instead of government.
TRIA came about after the 9/11 attacks highlighted the need for terrorism insurance on soft targets. But insurance companies’ inability to calculate likelihood and degree of exposure meant they weren’t offering policies. TRIA enables insurance companies to write terrorism policies without risking bankruptcy by offering federal loans in the event of catastrophic damage. The loans must be repaid in full. In practice, TRIA enables private industry to put some skin into the game. Absent terrorism insurance, taxpayers would likely absorb the full cost of an attack.
TRIA enables insurance companies to write terrorism policies without risking bankruptcy by offering federal loans as a backstop. The loans must be repaid in full and only kick in should a major terrorist attack occur. In practice, TRIA enables private industry to put some skin into the game. Absent terrorism insurance, taxpayers would likely absorb the full cost of an attack.
Beyond protecting taxpayers TRIA helps mitigate mitigating the economic impacts of the threat of terrorism. In the months following 9/11, the absence of terrorism insurance caused a great deal economic damage. Banks won’t write a loan on something that isn’t insured. Absent funding, that new office building doesn’t get built and all the jobs associated with it don’t happen.
Some have argued that the government needs to get out of the terrorism insurance market. I agree. TRIA should be a temporary program that lasts only as long as it takes for the private marketplace to take over. That is precisely what the Chairman of the House Financial Services Committee set out to do when the bill came up for reauthorization last year. Conservative Chairman Jeb Hensarling pushed reforms to encourage the development of a private market and to further increase taxpayer protections until that happens.
Hensarling’s bill passed of the House last year but failed in the Senate. As a result of the delay, the program expired on December 31, 2014. At this early date, most affected deals are enjoying a temporary grace period. But if TRIA is not renewed, policies will start to be cancelled, projects shut down and jobs lost. Fitch Ratings has identified at least 20 translations that will be downgraded to Rating Watch Negative.
Hensarling reintroduced his bill in the new Congress and both the House and Senate voted to pass it this week. But the White House has been noncommittal and there has even been talk of a veto.
The only path to getting government out of the terrorism insurance business is to develop a free market solution. Hensarling’s bill is the path to that market.The President should sign the TRIA legislation immediately. The sooner TRIA is renewed, the sooner taxpayers can get off the hook.