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WASHINGTON, DC-A new report issued this week by the GAO lends credence to the argument that the private market cannot support terrorism coverage without a federal backstop in place. The heated debate between some members of Congress and the real estate and insurance industries was only partially laid to rest when Congress extended the Terrorism Risk Insurance Act of 2002 late last year for another two years.

“Given the challenges faced by insurers in providing coverage for, and pricing, NBCR [nuclear, chemical, biological and radiological] risks, any purely market-driven expansion of coverage is highly unlikely in the foreseeable future,” the GAO team concluded.

The Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises and the Subcommittee on Oversight and Investigations, chaired by Rep. Richard H. Baker-LA and chaired by Rep. Sue W. Kelly-NY, respectively, are holding a joint hearing today. Testifying will be insurance and real estate industry experts like Ira Shapiro, on behalf of the Real Estate Board of New York; Jonathan W. Knipe, senior vice president, general counsel and director of Business Affairs, World Trade Center Properties LLC; and Christopher J. Nassetta, president and CEO of Bethesda, MD-based Host Hotels and Resorts, Inc. They also will discuss the GAO report, which was requested by Financial Services Committee Chairman Michael G. Oxley-OH.

When TRIA was extended last year, Congress included mandates for the insurance industry to develop private sector solutions to replace the federal backstop. A number of proposals have been floated, but because terrorism attacks are not easily modeled it is difficult for insurers to properly priced coverage.

The report also found that even with TRIA in place, the supply of NBCR coverage is limited. “Representatives of insurance and insurance brokerage companies we interviewed said that even though TRIA would cover NBCR losses incurred by an insurer the same as it would any other covered terrorist losses, little coverage for NBCR risks was available because commercial property/casualty carriers largely viewed NBCR risks as uninsurable,” the GAO team wrote in its report, “Terrorism Insurance: Measuring and Predicting Losses from Unconventional Weapons Is Difficult, but Some Industry Exposure Exists.

The team also concluded that “the current structure of TRIA offered little incentive to cover NBCR losses, even though TRIA would provide coverage for some insured NBCR events.” The statement was based on information from representatives of two large commercial property/casualty insurers, both of whom underwrote insurance in states with localities considered at higher risk for a terrorist attack.

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