TRIA Resolved - For Now...

While we find ourselves busily engaged on a project that addresses the operational risks associated with a potential outbreak of avian flu, we need to step back and provide a progress report on an old subject. TRIA, or the Terrorism Risk Insurance Act, was to expire at the end of this past December. Had this issue not been resolved (which it was just two weeks prior to its expiration), insurers would have lost their last valuable resort to protect against the risk of a catastrophic terror attack. Indeed, many insurers who had to have collectively been holding their breath before this issue was resolved were openly grateful when President Bush put the issue to bed. Sentiments such as these expressed by The Hartford Financial Services Group were pretty common:

The Hartford Financial Services Group, Inc. (NYSE: HIG) , one of the nation's leading providers of investment and insurance products, commends Congress and President Bush for enacting critical legislation today that will extend the Terrorism Risk Insurance Act of 2002 (TRIA).

Soon after the euphoria settled down, the question soon became, what exactly was accomplished? Seems that this is not as much a case of putting this issue to bed, as much as it is creating an interim solution until a more permanent solution can be found. Make no mistake about it, this is an interim solution, and far from being resolved. Why has this become so complicated? Much of it has to do with the fact that when TRIA was first signed, it was supposed to be nothing more than a stop-gap solution until something more permanent was found:

Three or four years ago, recalls Leigh Anne Pusey, senior vice president for government affairs for the American Insurance Association, Washington insiders used to joke that President Bush ended every speech with "God Bless America and pass the terrorism bill."

However in 2005 when it came time to renew TRIA, that full backing of the Bush Administration was missing. Why?

"…(B)ecause they bought this program thinking it was temporary, a three-year program, a bridge…," says Pusey. When the industry came back and said it needed the government program renewed, conservatives with power in Washington balked.

Policy makers now have two years to hash this out and come to a final conclusion as to where this policy will go. If it does have a future, it will probably have to take on a new form, and this might very well require more involvement from the insurance industry itself:

Arguing that the federal government can't take sole responsibility for guarding against terrorism, some homeland security experts want another entity to contribute its clout and expertise: the insurance business.

Insurers should offer chemical plants, utilities and other at-risk businesses lower premiums in return for tighter security, experts said. The idea borrows from the successful use of insurance-based incentives to cut down on car accidents, fires and smoking-related deaths.

A common set of standards to prevent terrorist attacks would be developed, with insurers rewarding clients who comply, said Frank Cilluffo, who served as a top aide to former Homeland Security Secretary Tom Ridge.

This whole discussion seems to be traversing the same path as a boomerang.