The more things change, the more they stay the same. We had something pass Congress late last week called “The Terrorism Risk Insurance Act”. How do you oppose something with a title like that? It’s kind of like the “God Bless America Law” or a “Resolution in support of Mom and Apple Pie.” But — if you read into the fine print on TRIA — you see that the bill is little more than a bailout akin to the bank bailouts of 2007-2009 that plays real havoc with the free market.
Politicians were falling all over themselves to support TRIA. In the House, Walter Jones was the only North Carolina Republican to vote ‘Nay.’ In the Senate, both Burr and Tillis said ‘Aye.’ Senator Thom even put out a statement:
[…] “The heinous act of terror in Paris yesterday serves as a tragic reminder that our enemies continue to pose a significant threat to America and its allies, and our nation must be prepared,” said Senator Tillis. “The Senate overwhelmingly voted to reauthorize TRIA to safeguard our economy in the event of a terrorist attack and provide American taxpayers and businesses with long-term certainty. I thank my colleagues from both parties for coming together to pass this critical legislation.”
TRIA was created by Congress and signed into law by President George W. Bush in 2002 following the September 11, 2001 terrorist attacks. The law helps cover damages caused by acts of terror against our nation and its citizens.
The TRIA Reauthorization Act of 2015 extends the law through December 31, 2020. Reforms in the legislation allow the law to naturally adapt to market-based competition, increasing protection of taxpayers and private insurers from large economic losses that are the direct result of terrorist attacks.[…]
The folks at right-leaning locales like Cato, Heritage, and The Heartland Institute had a much less rosy view on the bill. Here’s Eli Lehrer at Heartland:
After hijackers destroyed the World Trade Center on 9/11, taxpayers ended up spending a lot of money to aid the injured, rebuild public infrastructure, improve security, and help the jobless. But the private firms with property and workers in lower Manhattan fell back on their private insurers. And the companies paid out: Over $35 billion flowed from their capital reserves to people harmed in the attack. No insurers went under as a result of 9/11 and all but a handful of claims were paid within a few months. In short, it was a shining hour for the insurance industry.
But if another major terrorist attack takes place, the industry won’t have as much need to step up to the plate. Instead, the government will take charge. Under an obscure but potentially budget-busting program-terrorism risk insurance-the federal government has assumed nearly unlimited liability for major terrorism losses. The program, called TRIA, can claim broad support but has deep flaws and imposes billions in liabilities on taxpayers. The program, though never intended to be permanent, will be entrenched before long. Still, it’s not too late to restore an affordable, private system of insurance.
Under the current program, once industry-wide private commercial and workers compensation insurance claims from a terrorist attack exceed $27.5 billion, TRIA kicks in and covers the remaining expenses up to $100 billion. (Congress would almost certainly lift the $100 billion cap if claims exceeded that amount.) In theory, the money to pay claims would come from a tax (up to 3 percent) on just about every eligible insurance policy in the country. If this tax proved insufficient, Congress would have to use other revenues.
Although TRIA was created in 2002 as a post-9/11 stopgap, insurance companies have shown almost no interest in replacing it. Often fractious industry groups representing brokers, insurers, reinsurers, and commercial insurance consumers have lined up in support of the program. And, when the Government Accountability Office studied terrorism insurance earlier this year, it found that the chances of a private terrorism insurance market developing were very slight. TRIA is currently authorized through 2014.
And that’s a problem because the federal government-already stretched with bailouts and “stimulus” spending-has no business running a hugely expensive insurance program. Its record isn’t encouraging. The other major federal effort at disaster insurance, the National Flood Insurance program, owes the Treasury about $19 billion, has no way to pay it back, and has actually increased the nation’s susceptibility to flood by effectively subsidizing building in flood-prone areas. States like Florida that attempt to run property insurance programs have done even worse.[…]
And here’s Heritage:
[…] In the years since 9/11, the percentage of larger companies purchasing terrorism insurance has increased from around 27 percent in 2003 to more than 60 percent. In some industries and areas of the country, insurance coverage is as high as 80 percent. Costs have also fallen, with the median premium rate for medium- and large-size firms falling by almost 60 percent from $57 million to $25 million between 2004 and 2009.
Given the development of a functioning insurance market, there is no need for the federal government, and thus the U.S. taxpayer, to be on the hook for terrorism insurance payouts. The insurance industry and the companies that want to buy terrorism insurance are now perfectly capable of assessing the value of this insurance and making informed decisions in the marketplace.
Ultimately, TRIA is now little more than corporate welfare that is likely hindering the full maturation of the terrorism reinsurance market. At this point, there is no reason for the American taxpayer to be responsible for insurance losses on private property.[…]
The terrorist attacks of September 11, 2001, inflicted enormous losses on the insurance industry and businesses. In the wake of the disruptions occurring in the insurance market at the time, the government enacted the Terrorism Risk Insurance Act of 2002 to create a “temporary” federal backstop against catastrophic losses. This program subsidized private risk with public funds through a cost-sharing program for which the government does not receive any compensation.
The compelling need for the program was unclear even in the smoldering aftermath of 9/11. Yet in response to effective lobbying by the insurance industry and business interests, Congress has twice extended the program. The program is now scheduled to sunset at the end of 2014, 12 years after this supposedly temporary program was instituted.
If there was some ambiguity about the program’s need before, there is none now. Terrorism risk is not more severe than other insurable risks such as natural catastrophes, and a federal backstop stakes public money to protect the insurance industry, and subsidize the terrorism risk insurance premiums for commercial policyholders. The private market is capable of underwriting this risk. This policy analysis suggests that the program should sunset as scheduled in 2014, thus ending this form of corporate welfare.
Insurance — like so many other aspects of capitalism — is all about risk. Insurance companies take a risk by agreeing to pay you if something bad happens. You risk your money — in the form of premiums — to pay the insurance company so that you are protected if, God forbid, something bad happens. If nothing happens, you are out that money.
The same with health insurance. Obama and his comrades have been leaning on the insurance industry to cover EVERYBODY. Start insuring uninsured people even after they get sick. You don’t start calling insurance companies seeking coverage AFTER you’ve had that car wreck.
Putting the government into the middle of private business ventures like this takes away a lot of risk — just like it did in the financial crisis of 2007-2009. Why worry about bad loans if you know Uncle Sam is going to cover them if they go into default? Why worry about insuring a business that repeatedly gets threatened by al qaeda if you know Uncle Sam will cover the damage bill if something happens? People tend to make more prudent, careful decisions in business and in life if they are risking their own money — as opposed to someone else’s.