(New York) - The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises today held its first hearing in New York City to discuss extending the Terrorism Risk Insurance Act (TRIA), which established a federal terrorism-insurance program in the wake of September 11, and is currently scheduled to expire at the end of 2007.  The hearing was chaired by New York Rep. Gary Ackerman (D-Queens/L.I.), who substituted for Chairman Paul Kanjorski (D-PA). New York Mayor  Michael Bloomberg—invited by Ackerman to testify— as well as Senator Charles Schumer (D-NY) were among the witnesses who appeared.  A second panel of expert witnesses will consisting of leading developers, insurers, reinsurers and real estate investors testified as well (see list below).

After the 9/11 attacks, many insurance companies excluded terrorism insurance from their policies. As a result, Congress passed TRIA which created an insurance backstop from the federal government to protect against terrorism related loses. The measure was extended for two years in 2005 and expires at the end of 2007.

“There was no place more appropriate for Congress to hold this hearing than in New York City which obviously has been most affected by the 9/11 terrorist attacks,” said Ackerman, a senior member of the Subcommittee. “No where else could the Subcommittee have heard more firsthand testimony about the continued need for the federal government to participate in insuring against terrorism. The issue is vital to the rebuilding at Ground Zero and the economic prosperity of all large metropolitan areas. Without terrorism insurance, banks will not lend money and developers will simply not be able to build.”

In addition to the Mayor and Senator Schumer, the witnesses who testified included: Eric R. Dinallo, Acting Superintendent, New York Insurance Department; Dr. Roger W. Ferguson, Chairman, Swiss Re America Holding Corporation; John N. Lieber, Senior Vice President, World Trade Center Properties, LLC; Stephen L. Green, Chief Executive Officer, SL Green Realty Corporation; Steven K. Graves, Chief Operating Officer, Principal Real Estate Investors; Edmund F. Kelly, Chairman, President and Chief Executive Officer, Liberty Mutual Group; Warren Heck, CPCU, President & CEO, Greater New York Mutual Insurance Company and Donald J. Bailey, Chief Executive Officer, Willis NA.

Below is Ackerman’s opening statement from the hearing:

I’d like to welcome the members of the Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee to New York City. I’d also like to thank our many distinguished witnesses, who will be introduced shortly, for taking time out of their busy schedules to appear at our hearing this morning on a very important topic: “The Need to Extend the Terrorism Risk Insurance Act.”

I’d like to take a moment at the outset to indicate that the Chairman of the full Committee is Barney Frank, and that the Chairman of this subcommittee, Paul Kanjorski, is unable to join us this morning due to an unexpected conflict, which brings me to the chair. So, on behalf of the subcommittee, I’d like to express my gratitude to Chairman Kanjorski for arranging this important field hearing today, and for his strong support and stewardship of a fair and comprehensive reauthorization of the Terrorism Risk Insurance Act, (TRIA.)

I’d also like to thank the New York City Council and Speaker Christine Quinn for allowing the subcommittee to use the Council’s chamber for this hearing. It is now my pleasure to recognize Speaker Quinn for a welcoming statement.

New York City is the ideal setting for our hearing. In addition to the enormous loss of human life on 9/11—the value of which cannot be measured—the terrorist attacks on that infamous day caused catastrophic economic losses to this city and to our nation as a whole. The attacks of 9/11 resulted in $30 billion of insured losses—the largest catastrophic insurance loss in the history of the United States—larger than any blizzard, tornado, or hurricane. As a result, insurers and reinsurers began to worry about the likelihood—and the cost—of a future terrorist attack. Worrying about risk and then monetizing that risk is the key to the insurance industry, which is itself an essential element in a modern dynamic economy. As businesses with legitimate concerns about their solvency, insurance and reinsurance firms withdrew from the New York City market. As the supply of terrorism insurance rapidly decreased, New York City developers, who were required to be insured against terrorism, were put in a precarious position; they needed terrorism insurance to avoid defaulting on their loans, but the market for insurance quite simply didn’t have enough supply to meet their demand.  Similar shortages began occurring throughout the country. In simple terms, there was a market failure.

It was out of this dilemma and the critical need to address it that the original version of TRIA was born. TRIA increased the availability of terrorism insurance coverage by creating a federal backstop that would share the burden of losses caused by any future acts of terrorism with the insurance industry. In the wake of 9/11, we had hoped that a temporary, three-year program would provide enough of a shield to allow the market to fully recover. By late 2005, however, the Financial Services Committee and others in the Congress realized that TRIA had not resulted in as quick or as robust of a recovery as was initially hoped.  TRIA was extended for an additional two years, and is currently set to expire on December 31 of this year.

Failure to extend TRIA would be a disaster. It would certainly result in the destabilization of the insurance industry, and, in all likelihood, the national economy. Every type of large scale enterprise would be at risk, and the threat to our national economic health would be immense. Congress has no greater domestic obligation than to ensure the safety of the American people, and this obligation extends to both acts of terrorism and to foreseeable and preventable economic turmoil. 

It is my view, and it is the view of many within the financial services industry, that a long-term extension is necessary. It is a cliché, but 9/11 did, indeed, change everything.  The real, increased potential for terrorists to commit not just a heinous, but a catastrophic act, will continue to influence the market’s assessment of risk for years. In the new world we live in, Nuclear, Biological, Chemical and Radioactive, or NBCR, coverage must be included in the TRIA program. A Government Accountability Office report in September 2006 found that “any purely market-driven expansion of coverage” for NBCR risk is “highly unlikely in the foreseeable future.” A study simultaneously undertaken by the President’s Working Group came to the same conclusion. Without a significant market expansion for NBCR coverage, the federal government must step in and provide coverage.

There is debate as to how long the reauthorization period should be; whether the trigger, deductible, recoupment, or co-payment levels in the existing authorization should be amended; and whether group life insurance provisions should be added to TRIA’s framework. I hope that the witnesses before the subcommittee today will address these specific, contentious areas.

There are many different perspectives on these questions and many different interests and equities at stake. This subcommittee hearing is just the first step in what will be a long, but I hope successful, journey toward TRIA reauthorization. We hope to travel that long road quickly. Beginning our work here in New York City shows how serous the Financial Services Committee and the Congress are about this vital question to our economy.

As we say in New York, “Let’s get down to business.”

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