Report: Private Markets Not Prepared to Cover Major Terrorism Losses

Despite improvement in insurance markets since Sept. 11, major event could stretch past what government and private markets could handle

The OECD report was published just days after a much-anticipated U.S. Treasury report recommended the U.S. Terrorism Risk Insurance Act not be renewed in its present form once it expires at the end of this year. TRIA, passed by the U.S. Congress in response to the Sept. 11 catastrophe, set up a formula under which the U.S. government acted as ultimate backstop to any future terrorism losses suffered by insurers and insureds above a certain amount.

According to the U.S. Treasury, TRIA served its purpose in stabilizing shaken property/casualty markets after the attack, but has since distorted market forces by slowing private-sector development of terrorism coverage and lulling those buying insurance into complacency regarding their own risk management strategies (BestWire, June 30, 2005).

It is still uncertain whether Congress will heed Treasury's advice and refuse to renew TRIA.

The OECD is a coalition of 30 member countries dedicated to democratic institutions and a market economy. Members include 22 European states, Japan, South Korea, Australia, New Zealand, the United States, Canada, Mexico and Turkey.