Insurers Claim Mitigation Efforts Complement, But Do Not Replace the Need for TRIA

February 23, 2005

Officials in the Department of Homeland Security have introduced a proposal to mitigate losses from a future terrorist attack by establishing corporate security standards, or “best practices,” that will help protect American businesses from terrorism. However the Property Casualty Insurers Association of America, an industry association of insurers, claims that mitigation will not replace the need for renewing the Terrorism Risk Insurance Act, which is set to expire on Dec. 31, 2005.

“Mitigation should be a part of any long-term private sector solution to managing terrorism risks,” said Carl Parks, senior vice president, federal government affairs for the PCI. “But reducing exposure to catastrophes by incorporating better risk mitigation techniques does not address the issue of financing the losses from these mega-catastrophes. That’s the important role that the Terrorism Risk Insurance Act (TRIA) plays and a component that must remain in place if we are serious about protecting Americans and the American economy from terrorist threats.”

According to PCI, insurers work closely with their business clients to help them assess, reduce and manage all types of risks in an effort to increase the safety of workers and consumers, and lower the cost of claims and premiums. “Risk management is at the core of our members’ business practices,” Parks said.

However, PCI said in a statement that its members are concerned that mandated loss control measures, such as those stated in the Department of Homeland Security’s proposal, could increase the cost of doing business, invite litigation, and fail to deliver any real benefits to business owners, workers, or consumers.

The basic concept of the proposal would be to have the government or each industry develop a minimum set of security “best practices,” reported the Boston Globe. Insurance companies could then audit their business clients for compliance against the set standards, offering reduced premiums for compliance.

“Making the government a partner in the relationships between insurers and their clients by mandating that companies follow a strict set of loss control rules and requiring insurers to provide specific discounts simply does not work and is not appealing to either commercial insurance consumers or insurance companies,” Parks said. “This private market approach is best left where it is now – with the private market.”

The trade association of insurance companies continues to claims that a private market solution for terrorism coverage will not work without some level of federal involvement.

“Terrorism is a national economic security problem. It requires a long-term, national response, which includes both loss mitigation and sound economic policy,” Parks said. “Insurance providers and insurance consumers understand their role in this equation and are working hard on loss mitigation efforts. However, that does not eliminate the need for continuation of a federal role. Without a long-term solution in place before the expiration of TRIA at the end of this year, terrorism insurance will likely become unaffordable or unavailable to business insurance consumers.”

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