Insurers, businesses need financial protection from terrorists

Peoria Journal Star - August 1, 2004

By Michael J. Stone

The morning that the two airline jets crashed into the World Trade Center, I was in a Manhattan taxicab. I watched the trail of smoke as it billowed for miles across the sky and, even before learning the details, knew something very serious had occurred. I also realized I’d better get out of the cab and start walking, because traffic would likely be at a standstill for hours.

I was right. The entire nation — not just Manhattan traffic — came to a standstill that morning, at least from a standpoint of "business as usual." But business still had to be done, both in spite of and because of the tragic events of 9-11, and thousands of people — especially those in the insurance industry — had to act swiftly and resourcefully to ensure that vital transactions occurred that day. Despite the fact that my company, RLI, lost a Trade Center office in the ordeal (thankfully, all of our employees survived without injury), our operations that had been based there were up and running from an alternate location less than a day later.

RLI’s response to the 9-11 terrorist attacks simply underscores the fact that the insurance industry played a critical role in helping America recover financially in the attacks’ aftermath. And despite three years of progress in the fight against terrorism, the threat of future attacks is constant, the potential costs incalculable.

Should the insurance industry have sole responsibility for assessing these threats, predicting possible losses and collecting premiums to cover them? No. That’s why Congress enacted the Terrorism Risk Insurance Act (TRIA) in the wake of 9-11. TRIA ensures America’s recovery from the financial devastation from acts of terrorism.

Unfortunately, the act is set to expire Dec. 31, 2005. Considering that many businesses are well into the negotiating process for 2005 policy renewals, the issue is urgent. Unless Congress acts to renew TRIA this year, renewal policies written after Jan. 1 of next year will lose their protection for terrorism coverage on the first day of 2006.

A few things to note about TRIA, and why it’s so important to American business:

• Only a public-private partnership such as this can create the vast funding necessary to recover from catastrophic events like 9-11.
• TRIA is not a bailout; it merely serves as a ‘‘reinsurer.’’ The insurance industry still bears a significant portion of any covered losses — equal to 10 percent of a year’s premium volume, plus 10 percent of all losses above that amount — before the federal government steps in. Cost of administering the program is minimal.
• TRIA has worked exactly as planned thus far. It’s helped American businesses obtain the terrorism insurance they need so they can build their facilities, underwrite their mortgage, and keep our economy growing. That’s why insurance companies aren’t the only ones seeking the act’s extension. The real estate, banking, construction, farming and manufacturing
  businesses, among dozens of others, support it as well.

Several bills extending TRIA have been introduced in the U.S. House of Representatives, which could act quickly. But passage in the Senate may prove difficult. TRIA spent a year there before winning approval.

It would be a mistake to let that happen this time around. We need this important economic safety net in place before it's too late.

Michael J. Stone is president and chief operating officer of RLI Insurance Co., a Peoria-based property and casualty insurer. The company says it suffered ‘‘minimal losses’’ in the Sept. 11, 2001, attacks.

Last Updated March 08, 2005