Roger Ferguson presents economic case for permanent terrorism solution
The Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee of the US House of Representatives’ Financial Services Committee held a hearing in New York City on March 5 on the Terrorism Risk Insurance Extension Act (TRIEA). Roger W. Ferguson, Swiss Re Executive Committee member, head of our Financial Services business and Chairman of Swiss Re America Holding Corporation, provided testimony in support of a public/private partnership for terrorism risk insurance.
In defining the economic need for a government backstop for terrorism risk insurance, Mr. Ferguson explained that terrorism insurance and reinsurance are businesses prone to market failure because terrorism risk is largely uninsurable. He noted that in addition to the fact that a terrorist event does not have the usual characteristics of insurability, the potential scale of a terror attack makes it difficult for the private sector to manage the risk on its own.
In addition, Mr. Ferguson emphasized the importance of the inclusion of Group Life in TRIEA. Swiss Re believes that excluding Group from a permanent public-private terrorism solution could threaten the stability of the Group Life industry in the event of a major terror attack. [See Swiss Re’s web site for more information on the Top Topic Terrorism.] As Mr. Ferguson pointed out in his testimony: “Group life business, like worker’s compensation, contains a significant concentration of risk. Moreover, Group Life insurers are not free to manage their risk through terrorism exclusions. Most state regulators do not allow it.”
Mr. Ferguson gave details to the Subcommittee explaining how an explicit government terrorism risk backstop reduces ambiguity about costs incurred due to a terrorist event by making it clear who will pay how much and for what losses. In addition, Mr. Ferguson presented the rationale for making the backstop permanent.
Roger Ferguson's full testimony and more information about the March 5 hearing in New York City can be found on line at House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Hearing.
Swiss Re will continue to work with Congress, the Administration and clients to support the passage of a permanent federal backstop for terrorism risk and for the inclusion of Group Life.
