Last month, the country marked the one-year anniversary of the Boston Marathon bombings — a grim reminder that the threat of terrorism remains. Yet there’s some doubt as to whether Congress will renew a law that prevents the terror threat from crippling our economy.
The 9/11 attacks resulted in $32.5 billion in insurance claims, the second-most-costly insurance event in US history behind Hurricane Katrina. Insurers responded by substantially raising insurance premiums for terrorism coverage, or suspending it altogether. By early 2002, 45 states had excluded terrorism from their standard commercial coverage.
This “scarcity of terrorism insurance” delayed or canceled $15.5 billion of real-estate projects across the country, according to the Real Estate Roundtable. Moody’s downgraded $4.5 billion in commercial mortgage-backed securities for the same reason.
Congress’ solution was the Terrorism Risk Insurance Act of 2002, which has the government share in terrorism-related insurance losses if the attack is of significant proportion. Slated to end in 2005, the program was extended to expire this year on Dec. 31.
I am a conservative Republican and believe in free markets, fiscal responsibility and constitutionally limited government. I know that the last thing our taxpayers want is another bailout — for a bank, a car manufacturer or an insurance company.
But extending this law again means supporting conservatism.
The insurance market simply isn’t fully capable of addressing today’s terror threat. Government intervention is necessary — at least for the time being — to ensure a highly functioning terrorism-insurance market.
Insurers typically want to predict a loss’s location, severity and frequency with some reliability. That’s practical for most catastrophic events, such as flooding or earthquakes, but you can’t predict the average loss from a terrorist attack: By definition, it’s random and unpredictable, and can be perpetrated by both foreign and native-born bad actors.
Yet our nation’s businesses still need to protect themselves from a potentially bankrupting loss or face laying off American workers. Ultimately, extending this law isn’t a Wall Street or big-business issue; it’s a Main Street issue.
One 2004 study found that a failure to extend the terror-insurance law, even without a new terrorist attack, would (in today’s dollars) take $67 billion and 290,000 jobs out of our economy by 2017 and reduce household net worth by $798 billion. The risks businesses would face without this insurance would make it that hard to hire and expand.
The law also helps keep workers-compensation insurance working. Under state laws, insurers must cover all of workers compensation. But workers-comp payouts would skyrocket in the wake of a major terror attack.
Government backstops can result in an industry bailout, paid out of the wallets of our hardworking taxpayers. Yet there is significant evidence that this law actually reduces government liability and protects the taxpayer.
A recent Rand Institute study found that by protecting our businesses from economic loss in the event of an attack, terrorism insurance ensures taxpayers in turn don’t have to pay for federal disaster assistance, amounting to $1.5 billion to $7 billion in less spending.
So, extending the program seems like a no-brainer. It either costs very little if it’s never used, or it saves taxpayers money if it is.
Of course, all laws should be routinely reviewed and reevaluated. Following the money in Washington is more important than ever, and I’ve dedicated my time in Congress to fighting for increased oversight of federal programs. House Financial Services Chairman Jeb Hensarling deserves praise for his skepticism of federal programs that intrude into the market, including terrorism insurance.
There’s room for compromise that both protects the taxpayers and ensures a viable terrorism-insurance market. Sen. Mark Kirk, for one, would decrease the government’s overall obligation, and raise the threshold at which significant government backing kicks in. We should also pursue increased transparency and examine other options that increase insurers’ skin in the game before and after a federal payout.
As we evaluate our options for extending this law, we must give everyone a stake in this program, including those concerned about preventing government bailouts and the businesses that need protection when the unthinkable happens.
But ultimately, conservatives can rally around extending this measure.
America’s first responders, law enforcement and military work tirelessly to protect the American people from terrorism. It’s now up to Congress to reauthorize the Terrorism Risk Insurance Act to protect America’s Main Street businesses.
Rep. Randy Hultgren (R-Ill.) sits on the House Financial Services Committee.