Category Archives: Insurance

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TRIA Extension Faces Tough Fight

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On December 31, 2014 the Terrorism Risk Insurance Act, or TRIA, is set to expire. The program, originally enacted in 2002, provides a financial backstop by the federal government in the case of a large-scale terrorist attack. TRIA has been extended twice, in 2005 and 2007, but there is uncertainty as to whether the program will be extended again.

Legislation that would simply extend the program to 2019 has been introduced by Rep. Michael Grimm (R-NY) and Rep. Carolyn Maloney (D-NY). However, Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, has voiced opposition to extending the program in its present form. The House Financial Services Committee has stated its plans to examine the private sector’s capacity to assess and price for terrorism risk and to consider proposals that would phase out TRIA over time.

Others have expressed arguments against the program’s extension as well. David C. John, senior research fellow in retirement security and financial institutions at The Heritage Foundation, testified before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity in September 2012 that “we have now reached a point where the private sector is increasingly capable of providing [terrorism] coverage at appropriate prices without government support.”

Maurice R. Greenberg, chairman and CEO of C.V. Starr & Co. and former CEO of American International Group Inc., stated at a press conference at the National Press Club in Washington that the “private market is capable of doing a heck of a lot more” in regards to terrorism coverage than it could at the time of the program’s original authorization. While he did stop short of calling for ending the program, Mr. Greenberg’s statement added to the argument that the private sector is capable of insuring terrorism risks without a federal backstop.

Proponents of the program, including RIMS, argue that a completely private solution is not feasible as terrorism acts are exceedingly difficult, if not impossible, to predict. Without a federal backstop in place, coverage capacity will be significantly reduced, driving prices much higher. This holds especially true in high-risk metropolitan areas such as New York City, Chicago, Los Angeles, etc. Without adequate capacity, many organizations will be forced to self-insure, leaving themselves exposed to an event that could possibly end in bankruptcy.

Supporters of the bill would like to see an extension passed by the end of 2013 so as not to negatively impact policies issued in 2014, but with Congress focused on other priorities, this debate could continue well into 2014 and potentially right up to the deadline of December 31, 2014. Supporters of the program, including RIMS members, are strongly encouraged to reach out to their member of Congress to express their support and need for the program.

Hank Greenberg on Executives, Culture and What to Do With Negative Personnel Directors

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In the video above, Maurice “Hank” Greenberg — the 87-year-old architect of AIG and current chairman and CEO of C.V. Starr & Co. — speaks his mind in an interview with Carrier Management

He talks about:

  • his time in the Korean War
  • his “purely by chance” start in insurance after returning stateside
  • how he fired the first personnel director he met in the industry (a “jerk” whose “attitude was very, very negative”)
  • the mark of a good executive (one who “tries to be himself” rather than just following in someone else’s footsteps “to be like them” — “if you don’t think independently, what are you: You’re just a copycat”)
  • How corporate culture evolves over time (“you’ve got to be sensitive to change”)

He has never been a bashful man.

Solar Storms — A Real Risk

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A recent report from Lloyd’s of London broker Aon Benfield says that we are in for some extreme solar weather for the remainder of 2013, which could lead to business interruptions and large insurance claims. This peak in activity comes in accordance with the sun’s 11-year cycle.

The report states:

Massive ground currents resulting from geomagnetic storms can flow through electricity distribution networks, resulting in large scale blackouts and permanent damage to transformers. Enhanced X-ray and powerful ultraviolet solar radiation during a solar flare can impact on radio propagation and telecommunications systems, blocking global communications. Solar radiation can even cause a satellite’s orbit to decay, while static electrical discharges interfere with GPS services creating problems for aircraft at high latitudes.

Researchers state that if a solar storm similar to that which occurred in 1921 happened today, it would cost upwards of $2 trillion, with recovery taking up to 10 years for the U.S. alone. The infamous solar storm of 1921 caused “the entire signal and switching system of the New York Central Railroad below 125th Street to be put out of operation, followed by a fire in the control tower at 57th Street and Park Avenue.” Interference was also reported throughout most of Europe.

Though it’s impossible for scientists to predict exactly when or where the next solar storm happen, what they do know is that with more sunspots come more stoms. And the fall of 2013 is when the Sun is set to reach the crest of its 11-year sunspot cycle.

“Well-rehearsed contingency planning for a wide range of potential natural and man-made disasters is always going to be worthwhile for any business,” says Aon Benfield analyst Ryan Springall within the report. “The crucial issue for many businesses and households in the case of geomagnetic storms is likely to be loss of electrical power, possibly for an extended period.”

The study also points out that insurers could be liable for unforeseen losses as a result of a solar windstorm — anything from machinery breakdown to D&O. If scientists are right, this coming fall will be a hotbed of solar activity. It would be prudent to develop a broad-based business interruption plan and alter your insurance to cover such a rare event.

Insuring Pacific Island Nations Against Catastrophes

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Due to recent extreme weather events in the Pacific Islands, the World Bank, Japan and the Secretariat of the Pacific Community have come together to devise a two-year pilot to see whether catastrophe insurance might work such islands as Samoa, Solomon Islands, Tonga, Vanuatu and the Marshall Islands. Known as the Pacific Catastrophe Risk Insurance Pilot, it aims to reduce the vulnerability of Pacific Island States to natural disasters by improving their financial response to such events. According to Japan’s Ministry of Finance, the  program “offers immediate emergency funding in the aftermath of a major disaster and will help stabilize Pacific Island economies so their efforts to respond to an emergency situation can be maximized.”