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Statement of Senator Michael B. Enzi

Senate Banking Committee Hearing on:

"Examining the Terrorism Risk Insurance Program"

2/28/07

Thank you Chairman Dodd. And thanks to the witnesses for appearing before the Committee today. I hope that your testimony today and the testimony of future hearings on this subject will help us understand the state of the insurance industry since the 9-11 attacks, and specifically, since the last reauthorization of the Terrorism Risk Insurance Act of 2002. Our markets are the strongest, most resilient markets in the world, and I believe that, when allowed to operate with minimal interference or influence, are capable of exponential growth and productivity for the people of the United States.

Following the September 11th attacks, our insurance markets suffered losses of approximately $32 billion, an enormous amount by any standard. This committee responded by crafting legislation to create a shared public-private partnership to allow the markets to stabilize and make terrorism insurance available again. This program was envisioned to be limited and temporary. However, as I am sure some witnesses will testify today, it has taken longer than expected for the markets to recover. So now, in 2007, this committee is meeting to consider another reauthorization of the TRIA program, or possibly make it permanent.

As this committee moves forward on this topic, I have some concerns that I will be focusing on. The first is taxpayer liability. In 2001, I supported a bill along with other members of this Committee, including Chairman Dodd, that would have created a temporary program containing explicit protections for the taxpayer in the case of a terrorist attack and lawsuits resulting from an attack. That bipartisan bill never came to a vote on the Senate floor. Many of the taxpayer protections, including a ban on punitive damages and regulations on out-of-court settlements, were later added. I believe these protections against punitive damage payments and settlements are very important to the American taxpayer and I will be looking to ensure they remain intact should this committee consider reauthorization legislation in the future.

I also supported the 2005 TRIA reauthorization because it represented a significant scaling back of the program, allowing the private market to grow it its place. And studies have shown that the insurance market has grown significantly in response. A 2006 report on terrorism risk insurance conducted by the President’s Working Group on Financial Markets found that firms have had more success modeling and managing terrorism risk, reinsurance capacity continues to grow, and insurance companies’ net worth is rising. This is positive progress as a result of the 2005 reforms that increased event triggers and deductibles for the insurance companies and excluded the number of eligible insurance lines.

However, I am concerned that this progress will slow down or stop if the TRIA program is not allowed to continue along this projection. In 2005, the Congressional Budget Office stated that if the "government continued to subsidize terrorism insurance it would probably contribute to deferring the private sector’s long-term adjustment to the increase in risk." This is a significant issue, especially if some are considering an expansion of the program. We must allow the markets to continue to innovate and price terrorism risk accurately. I do not think this can be done with such a large government presence in the marketplace.

In a free market, prices are accurate and competition leads to innovation. I am worried that the continued presence of the TRIA program would distort the market in both price and competition. As this committee evaluates TRIA, I will be looking for ways to allow the market to grow and strengthen without large government subsidies, and without leaving the taxpayer on the hook.

Thank you Mr. Chairman.